AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations.

SUMMARY:

This document contains final regulations that define widely held fixed
investment trusts, clarify the reporting obligations of the trustees and the
middlemen connected with these trusts, and provide for communication of tax
information to beneficial owners of trust interests. The regulations will
affect trustees of, and middlemen holding interests on behalf of beneficial
owners of trust interests with respect to, widely held fixed investment trusts.

DATES:

Effective Date: These regulations are effective
January 24, 2006.

Applicability Date: For dates of applicability
of these regulations, see §1.671-5(m).

FOR FURTHER INFORMATION CONTACT:

Faith Colson, (202) 622-3060 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations has
been previously reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control
number 1545-1540. Response to this collection of information is mandatory.

An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a valid control
number assigned by the Office of Management and Budget.

The estimated annual burden per recordkeeper varies from 1 to 4 hours,
depending on individual circumstances, with an estimated average of 2 hours.
Comments concerning the accuracy of this burden estimate and suggestions
for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP,
Washington, DC 20224, and to the Office of Management
and Budget, Attn: Desk Officer for the Department of Treasury,
Office of Information and Regulatory Affairs, Washington, DC 20503.

Books or records relating to a collection of information must be retained
as long as their contents might become material in the administration of any
internal revenue law. Generally, tax returns and tax return information are
confidential, as required by 26 U.S.C. 6103.

Background

This document contains amendments to 26 CFR parts 1, 301 and 602. On
June 20, 2002, the Internal Revenue Service (IRS) and the Treasury Department
withdrew proposed regulations (REG-209813-96, 1998-2 C.B. 259) relating to
the reporting requirements for widely held fixed investment trusts (WHFITs)
previously published in the Federal Register (63
FR 43354) on August 13, 1998 (1998 Proposed Regulations) and published a new
notice of proposed rulemaking (REG-106871-00, 2002-2 C.B. 190) in the Federal Register (67 FR 41892) on June 20, 2002 (Reproposed
Regulations). No public hearing was requested or held with respect to the
Reproposed Regulations. Comments responding to the Reproposed Regulations
were received. After consideration of the comments, the Reproposed Regulations,
with certain revisions, are adopted as final regulations by this Treasury
decision.

Section 301.7701-4(c) of the Procedure and Administration Regulations
provides grantor trust treatment to an investment trust with a single class
of ownership interests, representing undivided beneficial interests in the
assets of the trust, if there is no power to vary the investment of the owners
(a fixed investment trust). An investment trust with multiple classes of
ownership interests, in which there is no power to vary the investment of
the owners will also be treated as a grantor trust, if the trust is formed
to facilitate direct investment in the assets of the trust and the existence
of multiple classes is incidental to that purpose. Beneficial owners of trust
interests are treated as grantors. See §301.7701-4(c); see also Rev.
Rul. 84-10, 1984-1 C.B. 155; Rev. Rul. 61-175, 1961-2 C.B. 128.

Trustees of fixed investment trusts frequently do not know the identities
of the beneficial owners of the trust interests and are unable to communicate
tax information directly to them because trust interests often are held in
street name, i.e., in the name of a middleman. The reproposed
and final regulations provide rules that specifically require the sharing
of tax information among trustees, middlemen, and beneficial owners of fixed
investment trusts that meet the definition of a widely held fixed investment
trust (WHFIT). (See section I(A) below.)

In general, the final regulations retain the structure of the Reproposed
Regulations. Paragraph (c) of the reproposed and final regulations provides
general reporting requirements for trustees to provide information to requesting
persons, which include: (1) middlemen, (2) beneficial owners who are brokers,
(3) exempt recipients who hold their trust interests directly (and not through
a middleman), (4) noncalendar-year beneficial owners who hold their trust
interests directly, and (5) a representative or agent of any of the above.
Paragraphs (d) and (e) of the reproposed and final regulations describe the
responsibility of trustees and middlemen for information reporting to the
IRS and beneficial owners. Paragraphs (f) and (g) of the reproposed and final
regulations provide reporting safe harbors.

Explanation of Revisions to Reproposed Regulations
and Summary of Comments

I. Definitions

A. Definition of a widely held fixed investment trust and
classification as a widely held mortgage trust or a non-mortgage widely held
fixed investment trust

The Reproposed Regulations define a WHFIT as an arrangement classified
as a trust under §301.7701-4(c) in which at least one interest is held
by a middleman, provided that the trust is classified as a United States person
under section 7701(a)(30)(E). The final regulations retain this definition.

The Reproposed Regulations introduced the term widely held
mortgage trust (WHMT) to describe a WHFIT, the assets of which
are mortgages, amounts received on mortgages, and reasonably required reserve
funds, as measured by value. The final regulations expand the definition
of a WHMT, to provide that a WHFIT is also a WHMT if substantially all its
assets also include trust interests in one or more WHMTs and regular interests
in one or more real estate mortgage investment conduits (REMICs).

The final regulations also introduce a new term, non-mortgage
widely held fixed investment trust (NMWHFIT), to clarify and distinguish
the requirements and reporting safe-harbor for WHMTs from the requirements
and reporting safe harbor applicable to other WHFITS. A NMWHFIT is any WHFIT
that is not a WHMT.

B. Definition of a mortgage

The Reproposed Regulations provide a reporting safe harbor for WHMTs
that directly hold interests in mortgages; the safe harbor is not available
to tiered arrangements. The IRS and the Treasury Department, after considering
the comments received with respect to the Reproposed Regulations, have determined
that the definition of a mortgage should be clarified in the final regulations
to provide that an interest in a WHMT is not a mortgage under the regulations.
Accordingly, the final regulations define a mortgage as an obligation that
is principally secured by an interest in real property within the meaning
of §1.860G-2(a)(5) of the Income Tax Regulations, except that a mortgage
does not include an interest in another WHMT or an interest in a mortgage
held by another WHMT. The principal effect of this change is to clarify that,
although a WHFIT investing in another WHMT is classified as a WHMT and is
subject to the general reporting provisions that apply only to WHMTs, it is
not eligible for the WHMT safe harbor reporting rules for the reasons discussed
in section V(C) below.

Under the Reproposed Regulations, a unit interest holder is defined
as any person who holds a direct or indirect interest in a WHFIT at any time
during the calendar year. The final regulations replace the term unit interest
holder with two new terms: trust interest holder (TIH) and beneficial owner.
A TIH is any person who holds a direct or indirect interest in a WHFIT at
any time during the calendar year. A beneficial owner is a TIH who holds
a beneficial interest in a WHFIT. As in the Reproposed Regulations, in the
final regulations, the term middleman refers to a TIH that holds a trust interest
on behalf of, or for the account of, another person, or who otherwise acts
in a capacity as an intermediary for the account of another person.

D. Definition of item

The Reproposed Regulations use the term item without defining that term.
Item as used in the final regulations refers broadly to an item of income,
expense, or credit as well as any trust event (for example, the sale of an
asset) or any characteristic or attribute of the above that affects the income,
deductions, or credits reported by a beneficial owner in any taxable year
that the beneficial owner holds a trust interest. Item also may refer to
an individual item or to a group of items depending on whether the item must
be reported individually under §1.671-5(c)(1)(i) and (e)(1).

E. Definition of start-up date

The Reproposed Regulations define the start-up date of a WHFIT as the
date on which substantially all of the assets and the contracts for the purchase
of assets are deposited with the trustee of the WHFIT. The Reproposed Regulations
also define an asset to include an interest in a contract. Because the definition
of an asset includes an interest in a contract, the definition of the start-up
date in the Reproposed Regulations is revised in the final regulations to
provide that the start-up date is the date on which substantially all of the
assets are deposited with the trustee.

II. General Reporting and Record Retention Obligations

A. Requirement that the trustee provide trust information
on a calendar year basis

In general, the reproposed and final regulations require the trustee
to provide information regarding the WHFIT to requesting persons. The Reproposed
Regulations provide that the trustee could choose either a calendar month,
calendar quarter, or half or full calendar year reporting period, provided
that the information furnished by the trustee under the chosen reporting period
allowed the recipient to determine the WHFIT items attributable to a particular
beneficial owner with reasonable accuracy, regardless of the owner’s
taxable year or the period of time during the calendar year that the owner
held the unit interest.

One commentator was concerned that if a trustee choose a reporting period
shorter than a full calendar year, the trustee might also report trust information
to middlemen more than once a year and because of this, middlemen would be
required to process WHFIT information more than once a year. Another commentator
was concerned that, if a trustee chose a reporting period shorter than a calendar
year, the trustee could be required to report trust information more than
once a year.

In response to these comments, the final regulations provide that, regardless
of the period chosen by the trustee for calculating trust information, the
trustee must provide the information required under these regulations on a
calendar year basis. The trustee, of course, may provide additional trust
information to requesting persons throughout the calendar year at the trustee’s
discretion. For example, if a trustee uses a monthly calculation period,
the trustee must provide a single statement to requesting persons at the end
of the year that contains the information required to be reported under these
regulations for each month of the calendar year. In addition to the calendar
year statement, the trustee may, but is not required to, provide additional
statements to requesting persons during the calendar year.

To further clarify that a trustee may choose the period for calculating
the information required to be reported under these regulations, but in all
events must report that information to requesting persons on a calendar year
basis, the final regulations refer to the period chosen by the trustee for
calculating trust information as the calculation period rather than the reporting
period.

B. Trustee’s burden to retain information and supplemental
data

The Reproposed Regulations provide that, throughout the duration of
the trust and for a period of five years following the termination of the
trust, a trustee must retain: (1) a copy of the information required to be
provided to requesting persons each year; and (2) any supplemental data necessary
to establish that the information provided to requesting persons is correct
and meets the requirements of paragraph (c) (supplemental data).

One commentator noted that some WHFITs, particularly WHMTs, may be in
existence for up to 30 years and that the requirement in the Reproposed Regulations
for a trustee to maintain the WHFIT’s records for up to 35 years is
overly burdensome. The commentator acknowledged that the IRS and investors
may need to obtain WHFIT information from the trustee before the limitations
period applicable to a beneficial owner’s taxable year expires and suggested
that the final regulations provide that a trustee only be required to retain
information for a certain period after the close of the calendar year to which
the information relates.

The IRS and the Treasury Department adopt this suggestion with respect
to supplemental data. However, information with respect to each calendar
year of the WHFIT may be required by the IRS and by beneficial owners in order
to determine tax items of a beneficial owner (for example, market discount
or basis) for the entire life of the WHFIT and for several years after its
termination. For this reason, the final regulations continue to require the
trustee to retain a copy of the information required to be provided to requesting
persons for the duration of the WHFIT and for at least five years after its
termination. The IRS and the Treasury Department believe that this requirement
is not overly burdensome because this information can be maintained electronically.
The final regulations modify the requirement with respect to supplemental
data by providing that trustees need only retain supplemental data for five
years after the close of the calendar year to which the supplemental data
relates.

C. Manner in which WHFIT information is to be provided

The Reproposed Regulations provide that WHFIT information may be provided
in any manner that enables a requesting person to determine, with reasonable
accuracy, the WHFIT items that are attributable to a beneficial owner for
the taxable year of that beneficial owner. The Reproposed Regulations further
require that this information be furnished in a format that generally conforms
to industry practice for the reporting of a particular item of income, deduction,
or credit for the type of asset or assets held by the WHFIT.

One commentator suggested that, if the trustee is not providing trust
information under a safe harbor, information could be shared more accurately
and processed more efficiently if trustees were required to calculate and
provide trust information on the basis of trust interests. The IRS and the
Treasury Department do not agree that calculating and providing trust information
on a per trust interest basis is always the best method for conveying information
with respect to trust items that are not reported under the safe harbors.
The requirement that the trustee provide information consistent with industry
practice is intended to ensure that trustees provide WHFIT information in
a format that can be processed by the systems used by the majority of middlemen.
Accordingly, the final regulations do not adopt the suggestion.

One commentator also suggested that middlemen be permitted to furnish
beneficial owners with information calculated on a trust interest basis rather
than the amount of the item that is attributable to the beneficial owner.
The final regulations permit a middleman or a trustee to furnish information
calculated on a trust interest basis to a beneficial owner with respect to
a trust item, if: (1) the amount of the item is not required to be provided
to the IRS on an information return; and (2) the trustee calculates and provides
information on the basis of a trust interest with respect to that trust item
under paragraph (c) of the regulations.

D. Elimination of separate general reporting rules for
WHMTs

The Reproposed Regulations include separate reporting requirements for
trustees and middlemen of WHMTs and trustees and middlemen of WHFITs other
than WHMTs (i.e., non-mortgage widely-held fixed investment
trusts or NMWHFITs as defined in these final regulations), with respect to
market discount, bond premium, and principal payments. The final regulations
include general reporting requirements with respect to market discount, bond
premium, and non pro-rata partial principal payment information
that apply to all WHFITs. As under the Reproposed Regulations, the final
regulations require WHMTs to provide market discount, bond premium, and non pro-rata partial
principal payment information regardless of whether the WHMT meets one of
the de minimis tests described in section III of the
Preamble. Under the final regulations, however, NMWHFITs that meet the general de
minimis test or the qualified NMWHFIT exception (also described
in section III of the Preamble) are not required to provide information regarding
bond premium and market discount.

E. Requirement that a trustee identify a representative
of the WHFIT and identify the WHFIT as a WHMT or as a NMWHFIT

The Reproposed Regulations require a trustee of a WHFIT to provide the
name, address and telephone number of the WHFIT representative in a publication
widely available to middlemen, in the trust’s prospectus, or at the
trustee’s Internet website. The final regulations retain this requirement.
Further, if the trustee provides trust information at an Internet website,
the final regulations also require trustees, in addition to providing information
regarding the WHFIT representative, to provide the address of the Internet
website at which the trustee provides WHFIT information.

Two commentators were concerned that middlemen would not be able to
identify a client’s investment as an investment in a WHFIT and suggested
that the IRS publish a directory or list of WHFITs that would include the
name and CUSIP number of each WHFIT, along with the name, address and telephone
number of the WHFIT’s representative. Commentators noted that a publicly
available directory or list would assist middlemen and brokers in identifying
investment trusts as WHFITs and in locating the WHFIT’s representatives.

In response to these comments, the final regulations require a trustee
to identify the WHFIT as either a WHMT or a NMWHFIT when identifying the trust
representative. Further, the IRS and the Treasury Department are studying
whether a directory or list of WHFITs can be compiled by the IRS. The IRS
and Treasury Department are concerned that such a directory is not currently
feasible because of the large number of WHMTs. However, the IRS and Treasury
request additional comments from middlemen regarding the type of WHFITs that
should be included in any directory, the type of information needed by middlemen
(especially, middlemen holding WHMT interests), and the format of a directory
that would be most helpful. The IRS and Treasury Department also request comments
from trustees regarding how the IRS could obtain the trust information needed
for the directory from the trustees in the least burdensome manner for taxpayers
as well the Government.

III. Reporting of Asset Sales and Dispositions

A. General information reporting requirements

Under the Reproposed Regulations, the trustee is required to provide
information that would enable a requesting person to calculate the amount
of trust sales proceeds attributable to a beneficial owner with respect to
each sale or disposition of an asset by the trust. In addition, consistent
with grantor trust treatment, unless a WHFIT meets the “de
minimis test,” (discussed in III(B) of this Preamble), the
trustee is required under the Reproposed Regulations to provide information
that would enable a beneficial owner to allocate with reasonable accuracy
a portion of its basis in its trust interest and to allocate a portion of
its market discount or bond premium, if any, to each sale or disposition of
an asset by the trust. The final regulations retain these general information
reporting requirements for asset sales and dispositions. Although the requirements
to provide market discount and bond premium information (discussed in section
II(D) of this Preamble), are the same as those in the Reproposed Regulations,
in the final regulations, for purposes of clarity, these requirements are
provided separately from the requirement to provide information with respect
to sales and dispositions of assets by the trust.

The final regulations retain the exception from the general information
reporting requirements for WHFITs that meet the general de minimis test.
In addition, the final regulations provide an exception for WHMTs that meet
a special de minimis test for WHMTs that directly hold
interests in mortgages (the WHMT de minimis test is discussed
in section III(E) of this Preamble). The final regulations also provide an
exception from the general information reporting requirements for NMWHFITs
that meet the qualified NMWHFIT exception, which is applicable only to NMWHFITs
with a start up date that is on or before February 23, 2006.

B. Simplified reporting for WHFITs that meet the general
WHFIT de minimis test

For WHFITs that meet a de minimis test, the Reproposed
Regulations substantially simplified reporting with respect to the sale or
disposition of a trust asset from that required under the 1998 Proposed Regulations.
These simplified rules balanced current industry practice with the need for
beneficial owners to accurately report the tax consequences of ownership of
a trust interest. Under the Reproposed Regulations, the WHFIT de
minimis test is satisfied for the calendar year if the aggregate
amount of trust sales proceeds for that calendar year is not more than five
percent of the fair market value of the assets of the trust as of January
1 of that year (the general WHFIT de minimis test).
The Reproposed Regulations define trust sales proceeds as the gross proceeds
received by the WHFIT with respect to a sale or disposition of an asset by
the WHFIT.

Under the Reproposed Regulations, if the trust meets the general WHFIT de
minimis test, the trustee is excepted from the requirement to report
information regarding basis, market discount and bond premium. The IRS and
Treasury Department recognize that this method of reporting will likely result
in some deferral of both gain and loss for investors, but have determined
that, in cases where the WHFIT has de minimis sales and
dispositions, the level of deferral is acceptable given the costs of fully
accurate reporting of sales and dispositions. The final regulations retain
this exception from the general requirement to provide basis, market discount
and bond premium information for WHFITs that meet the general de
minimis test.

C. Extension of simplified reporting to NMWHFITs that meet
the qualified NMWHFIT exception

Several commentators requested that the final regulations except WHFITs
having a start-up date prior to the date of publication of these final regulations
from the requirement to report basis, market discount, and bond premium information
with respect to sales and dispositions. These commentators also requested
that trustees and middlemen be permitted to report information regarding distributed
trust sales proceeds rather than attributable trust sales proceeds.

To accommodate the industry’s concerns regarding existing NMWHFITs,
the final regulations add an exception for qualified NMWHFITs (the qualified
NMWHFIT exception). The qualified NMWHFIT exception is met if a NMWHFIT has
a start-up date that is on or before February 23, 2006 and the calendar year
for which the trustee is reporting begins before January 1, 2011. NMWHFITs
that meet the qualified NMWHFIT exception are excepted from the requirement
that trustees and middlemen provide information regarding basis, market discount,
and bond premium.

D. Distributed trust sales proceeds may be reported by
trustees and middlemen of trusts meeting the general de minimis test
or the qualified NMWHFIT exception

Several commentators noted that the requirement in the Reproposed Regulations
that trustees of WHFITs other than WHMTs (NMWHFITs in these final regulations)
report information to enable a requesting person to determine the amount of
trust sales proceeds attributable to a beneficial owner would impose an undue
burden. These commentators noted that, under current industry practice, trustees
and middlemen of WHFITs other than WHMTs only report to the IRS and the beneficial
owner the amount of trust sales proceeds distributed to the beneficial owner.

The IRS and Treasury Department have determined that if a NMWHFIT meets
either the general WHFIT de minimis test for the calendar
year or the qualified NMWHFIT exception, the purpose of reporting trust sales
proceeds information to beneficial owners (e.g., to enable
beneficial owners to adjust their basis in their trust interest to account
for the sale or disposition of the trust asset) is met if the beneficial owner
is given information regarding the amount of trust sales proceeds distributed
to the beneficial owner. Accordingly, if a NMWHFIT meets either the general
WHFIT de minimis test for the calendar year, or the qualified
NMWHFIT exception, the final regulations require: (1) trustees to report
information that will enable middlemen to determine the amount of trust sales
proceeds distributed to each beneficial owner during the calendar year; and
(2) middlemen and trustees to report to the IRS and to each beneficial owner
the amount of trust sales proceeds that are distributed to that beneficial
owner.

E. Simplified reporting for WHMTs that meet the general
de minimis test or the special WHMT de minimis test

In addition to the general WHFIT de minimis test,
the final regulations also provide a special WHMT de minimis test
that applies to WHMTs that directly hold interests in mortgages (the special
WHMT de minimis test). The special WHMT de
minimis test is met if the trust sales proceeds received by the
WHMT for the calendar year are not more than five percent of the aggregate
outstanding principal balance of the WHMT (as defined in paragraph (g)(1)(iii)(D)
of the final regulations) as of January 1 of that year. In applying the special
WHMT de minimis test, amounts that result from the complete
or partial payment of the outstanding principal balance of the mortgages held
by the WHMT are not included in the amount of trust sales proceeds. A WHMT
that holds interests in another WHMT or that holds interests in a REMIC may
not use the special WHMT de minimis test, but may use
the general WHFIT de minimis test (discussed in section
III(B), above).

If a WHMT meets the special WHMT de minimis test
or the general WHFIT de minimis test, trustees and middlemen
are excepted from the general requirement to report information to enable
a beneficial owner to allocate basis to a sale or disposition and are only
required to report information regarding the trust sales proceeds that are
attributable to a particular beneficial owner. If a WHMT does not meet a de
miminis test, trustees and middlemen must report information to
enable a beneficial owner to allocate basis to the sale or disposition as
well as the trust sales proceeds that are attributable to the beneficial owner.

IV. Exception for Certain Equity Trusts From the Requirement
that Trustees and Middlemen Report Information to Enable a Requesting Person
to Determine the Income That is Attributable to a Redeeming or Selling Beneficial
Owner up to the Date of Redemption or Sale

The Reproposed Regulations require trustees and middlemen to report
information to enable requesting persons to determine the income of the WHFIT
attributable to a selling, purchasing, or redeeming beneficial owner for the
portion of the calendar year that the beneficial owner held its trust interest.
Commentators objected to this requirement for WHFITs if substantially all
the income of the WHFIT is comprised of dividends (equity trusts). These
commentators noted that although trustees and middlemen report interest income
earned by the WHFIT up to the date of redemption or sale of a trust interest,
providing this information with respect to dividend income is inconsistent
with long-standing WHFIT industry reporting practice. Currently there is
no mechanism in place for communicating this information between trustees
and middlemen of equity trusts. Under current industry practice, the entire
amount paid to a beneficial owner who sells or redeems an interest in an equity
trust, including the amount paid for undistributed dividends held by the trust
at the time of the sale or redemption, is reported to the IRS and to the beneficial
owner as gross proceeds. As a result, a selling or redeeming beneficial owner
may report the ordinary dividend income portion of the payment as a capital
gain. The purchasing beneficial owner also receives incorrect income information
that may lead the purchasing beneficial owner to overstate its dividend income.
Commentators objected to expending resources for the development and testing
of new tax reporting systems to accurately report dividend income to selling,
purchasing, and redeeming beneficial owners, especially with respect to existing
equity trusts.

Commentators acknowledge, however, that the net asset value of an equity
trust, including the cash held for distribution, generally is calculated on
a daily basis. Because in the final regulations, the cash held for distribution
is a key component in calculating the amount of income attributable to a selling,
purchasing, or redeeming beneficial owner under the safe harbor for NMWHFITs,
the final regulations retain the general requirement that trustees and middlemen
provide information to determine the trust income that should be attributed
to a redeeming, selling, or purchasing beneficial owner.

The IRS and the Treasury Department recognize, however, that if an equity
trust frequently distributes its income, the trust is not likely to accumulate
significant undistributed dividend income. In such a case, the increased
accuracy that results from providing beneficial owners with accurate income
information up to the date of sale or redemption does not warrant the burden
of compiling and reporting this information. Accordingly, under the final
regulations, trustees or middlemen of equity trusts that are required by their
governing documents to distribute all cash (less reasonably required reserve
funds) held by the NMWHFIT at least monthly need not provide information regarding
the income that is attributable to a redeeming, selling, or purchasing beneficial
owner up to the date of sale or redemption. The final regulations also except
trustees and middlemen of an equity trust that meets the qualified NMWHFIT
exception (described in section III of this Preamble) from the requirement
that trustees and middlemen provide information regarding the income that
is attributable to a redeeming, selling, or purchasing beneficial owner up
to the date of sale or redemption.

V. Safe Harbor Reporting for WHFITs

A. The Safe Harbors must be used consistently

Under the Reproposed Regulations, a trustee of a WHFIT can decide whether
or not to use the safe harbor reporting practices on a year-by-year basis.
The IRS and the Treasury Department have concluded, however, that middlemen
and beneficial owners should receive WHFIT information that is calculated
consistently from one calendar year to the next because, assuming beneficial
owners report trust items consistent with the WHFIT information provided to
them, a trustee’s change in reporting could result in changes in the
timing that may impact beneficial owners. Further, allowing trustees to report
under the safe harbor one year and not the next, likely would confuse and
burden the middlemen and beneficial owners that must process WHFIT information.
Accordingly, the final regulations require trustees that choose to use the
safe harbor to report under the safe harbor for the life of the WHFIT. WHFITs
that have a start-up date prior to January 1, 2007 may choose to report under
the safe harbor provided the trustee begins to report according to the safe
harbor requirements on or before January 1, 2007 and does so for the life
of the WHFIT.

Under the Reproposed Regulations and the final regulations, a WHMT must
meet the eligibility requirements of §1.671-5(g)(1)(ii) and report consistently
with the safe harbor reporting rules to be deemed to have met its reporting
requirements under paragraph (c) of the regulations with respect to the trust
items described in the safe harbor. The final regulations eliminate two of
the eligibility requirements in the Reproposed Regulations that are inconsistent
with the rule that the safe harbor must be used for the life of the WHMT.

B. Request for comments regarding the need for safe harbors
for NMWHFITs that are outside the safe harbor in the final regulations

The Reproposed Regulations include safe harbor reporting rules available
to WHFITs other than WHMTs (i.e., NMWHFITs). If the
trustee of a WHFIT other than a WHMT reports consistently with the safe harbor,
the trustee is deemed to have met the requirements of paragraph (c)(1) of
the Reproposed Regulations. Those safe harbor reporting rules were developed
in response to comments received on the 1998 Proposed Regulations describing
the current reporting practices of WHFITs that primarily receive dividend
and interest income.

Upon reconsideration of those safe harbor reporting rules and the various
types of NMWHFITs, the IRS and the Treasury Department recognize that the
type of information reported under those reporting rules is only relevant
to NMWHFITs that hold stock and debt instruments and that information reported
under the safe harbor probably would not be useful to middlemen and beneficial
owners of NMWHFITs that hold other types of assets. As a result, the IRS
and Treasury concluded that safe harbor treatment should only be available
to NMWHFITs for which the safe harbors were designed (e.g.,
NMWHFITs that hold stock and debt instruments) and that other safe harbor
reporting rules should govern NMWHFITs that are outside the safe harbor.
Accordingly, in the final regulations only NMWHFITs substantially all the
income of which is comprised of dividends (as defined in section 6042(b) and
the regulations thereunder) or interest (as defined in section 6049(b) and
the regulations thereunder) that report as provided in the NMWHFIT safe harbor
will be deemed to have met the requirements of paragraph (c)(1) of the final
regulations. The IRS and the Treasury Department are considering providing
additional safe harbor reporting rules for NMWHFITs that are not under the
NMWHFIT safe harbor in the final regulations and encourage trustees and middlemen
to submit comments regarding NMWHFITs for which further reporting safe harbors
should be provided, including information regarding current industry reporting
practice for NMWHFITs that do not qualify for the NMWHIFIT safe harbor in
the final regulations.

C. Safe harbor reporting for WHMTs

1. Reporting Sales and Dispositions Under the WHMT Safe Harbor

The 1998 Proposed Regulations did not allow trustees and middlemen to
aggregate sales and dispositions of trust assets, even fungible trust assets,
for reporting purposes. In response to comments on the 1998 Proposed Regulations,
as well as the addition of section 1272(a)(6)(C)(iii) to the Code in 1997,
the Reproposed Regulations permit aggregate reporting for sales and dispositions
and principal receipts for WHMTs eligible to report under the WHMT safe harbor.
Under the WHMT safe harbor, a trustee is permitted to combine, for reporting
purposes, amounts received as trust sales proceeds from the sale or disposition
of some mortgages (including principal receipts that completely retire a mortgage)
with non pro-rata partial principal payments from other
mortgages. Thus, the safe harbor permits trustees and middlemen to report
trust information as if the WHMT, in effect, held only one mortgage, and to
report the aggregate of trust sales proceeds and non pro-rata partial
principal payments as though the trustee had received a non pro-rata partial
principal payment on that mortgage.

The WHMT safe harbor in the Reproposed Regulations is only available
to WHMTs that met the requirements of §1.671-5(g)(1)(ii) of those regulations.
Commentators requested that the final regulations provide that trustees of
all WHMTs, not just those meeting the eligibility requirements of §1.671-5(g)(1)(ii),
be allowed to apply this treatment for reporting purposes. The commentators
suggested that reporting sales and dispositions separately from principal
payments is unnecessary because receipt by the trust of trust sales proceeds
and receipt of principal payments have identical tax consequences for a beneficial
owner.

Under Rev. Rul. 84-10, 1984-1 C.B. 155, a beneficial owner of a WHMT
is treated for federal income tax purposes as having a proportionate share
of equitable ownership in each of the mortgages of the WHMT. If a taxpayer
owns mortgages outright and not in trust, the taxpayer does not report mortgage
sales proceeds or the complete prepayment of a mortgage in the same manner
as the receipt of a non pro-rata partial principal payment.
That is, a taxpayer that owns two mortgages does not combine the sale of
one mortgage with the receipt of non pro-rata partial
principal payments from the other mortgage for purposes of calculating the
taxpayer’s federal income tax liability. For this reason and the reasons
discussed in section V(C)(2) of this Preamble, the IRS and Treasury Department
do not adopt the commentators’ request.

2. Requirement that Trustees use a Prepayment Assumption When Providing
Market Discount and OID Information Under the WHMT Safe Harbor

The Reproposed Regulations require trustees and middlemen of all WHMTs
to report information to enable beneficial owners to calculate market discount
in any reasonable manner that is consistent with section 1276(a)(3). Regulations
have not been issued under the market discount provisions of the Code (sections
1276 to 1278). The preamble to the Reproposed Regulations notes that, in
the absence of regulations governing accrual of market discount, guidance
regarding the accrual of market discount with respect to the partial payment
of a debt instrument is provided in the conference report (see H.R. Rep. No.
841, 99th Cong., 2nd Sess.,
at II-842 (1986)) accompanying the amendment that enacted section 1276(a)(3)
(see section 1803(a)(13)(A) of the Tax Reform Act of 1986, Public Law 99-514,
100 Stat. 2085) (the Conference Report). Consistent with Congressional intent
expressed in the Conference Report indicating that holders must report market
discount in the absence of regulations, the Reproposed Regulations impose
a general requirement that trustees and middlemen of WHMTs report market discount
information.

The WHMT safe harbor provision for reporting market discount information
in the Reproposed Regulations is based on the Conference Report. Under that
safe harbor, trustees report market discount by providing one market discount
fraction for the WHMT that is the ratio of, either: (1) the OID accrued during
the month to the total remaining OID as of the beginning of the month; or
(2) the interest paid during the month to the remaining interest payable on
the mortgages held by the WHMT as of the beginning of the month. The Reproposed
Regulations require trustees to utilize a method that takes into account the
prepayment assumption used in pricing the original issue of trust interests.
The Reproposed Regulations also include a WHMT safe harbor provision for
OID information that required the use of the same prepayment assumption.

Commentators reported that they assumed that the Reproposed Regulations
permit trustees to use the safe harbor for reporting only sales and dispositions
and the receipt of principal payments and to ignore other trust items, such
as market discount and OID, when reporting under the safe harbor.

The WHMT safe harbor in the final regulations permits trustees and middlemen
of WHMTs that meet the requirements of §1.671-5(g)(1)(ii), to aggregate
the trust sales proceeds received from sales and dispositions of some mortgages
with non pro-rata partial principal payments on other
mortgages, but the safe harbor also requires trustees and middlemen to report
market discount and OID information consistent with section 1272(a)(6). Safe
harbor treatment is available to WHMTs that meet the requirements of §1.671-5(g)(1)(ii)
because the IRS and the Treasury Department have determined that, for those
WHMTs, if market discount and OID are reported as provided in the safe harbor,
mortgage-by-mortgage reporting with respect to sales and dispositions and
principal payments is unnecessary. Accordingly, the final regulations clarify
that, for a trustee to be deemed to have met the requirements of paragraph
(c)(1) of the regulations, the trustee must report all items identified in
the WHMT safe harbor consistent with the WHMT safe harbor.

3. Reporting for WHMTs that are outside the safe harbor

Some commentators may view the Conference Report as providing authority
to report market discount information using a single composite fraction, regardless
of whether the trustee is permitted to, and does in fact, report under the
WHMT safe harbor. The IRS and the Treasury Department disagree with the commentators’
reading of the Conference Report as applied to WHMTs. The Conference Report
simply provides that, until such time as the Treasury Department issues regulations
regarding the computation of the accrual of market discount, holders may elect
to accrue market discount using either a constant interest method or a market
discount fraction.

The Conference Report may implicitly discuss aggregate reporting in
that it states that, in the case of debt instruments that would be subject
to the OID rules contained in section 1272(a)(6) (without regard to whether
the debt instruments have OID), the same prepayment assumption that would
be made in computing OID would be made in computing the accrual of market
discount (whether or not the taxpayer elects to accrue market discount on
the basis of a constant interest rate). Section 1272(a)(6)(C)(iii) provides
that section 1272(a)(6) applies to any pool of debt instruments, the yield
on which may be affected by reason of prepayments. However, no guidance has
been issued regarding the application of section 1272(a)(6)(C)(iii). Until
guidance is issued under section 1272(a)(6)(C)(iii), the IRS and Treasury
Department believe that it is appropriate to provide safe harbor treatment
only for trustees of relatively straight forward arrangements who report information
consistent with the application of section 1272(a)(6) as provided by the safe
harbor reporting rules.

4. Reporting Bond Premium Under the WHMT Safe Harbor

The Reproposed Regulations include a general requirement that trustees
and middlemen of all WHMTs report information to enable beneficial owners
to determine the amount of amortizable bond premium, if any, in any manner
that is reasonably consistent with section 171. The Reproposed Regulations
reserve the portion of the WHMT safe harbor on reporting information regarding
bond premium. None of the comments on the Reproposed Regulations specifically
addressed bond premium issues. Accordingly, the final regulations continue
to reserve guidance on the issue while the IRS and the Treasury Department
study how bond premium information is to be appropriately reported for WHMTs.
The IRS and the Treasury Department welcome comments on this issue. Until
safe harbor reporting rules are provided for bond premium, a trustee will
not be penalized if the trustee reports information that enables a beneficial
owner to determine, in any manner reasonably consistent with section 171,
the amount of the beneficial owner’s amortizable bond premium, if any,
for the calendar year.

VI. Application of Reporting Rules to Foreign Fixed Investment
Trusts

A fixed investment trust that is not classified as a United States person
is not a WHFIT under the Reproposed Regulations or the final regulations.
Nothing in the Reproposed Regulations or these final regulations alters the
application of section 6048 to United States investors in a foreign fixed
investment trust. The preamble to the Reproposed Regulations notes that the
IRS and the Treasury Department continue to study how to facilitate the application
of section 6048 rules to foreign fixed investment trusts and requested comments
on this issue, including how forms 3520 and 3520A could be adapted for use
with foreign fixed investment trusts.

Commentators suggested that many beneficial owners of interests in a
foreign fixed investment trust cannot comply with the reporting requirements
of section 6048 because they cannot obtain the necessary information from
the trustee. These commentators suggested that, rather than adapting Forms
3520 and 3520A to foreign fixed investment trusts, the IRS and the Treasury
Department should permit certain foreign fixed investment trusts to report
pursuant to the reporting rules in these regulations. The commentators also
suggested that the final regulations provide that, if a foreign fixed investment
trust reports pursuant to these reporting rules, United States investors in
the trust be excepted from the reporting rules in section 6048. The IRS and
the Treasury Department intend to provide guidance in the area of foreign
trust reporting and will consider whether any of the suggested approaches
for WHFITs are more appropriate in this context.

VII. Effective Date of Final Regulations and Applicability
to Existing WHFITs

The Reproposed Regulations provide that the reporting rules were to
be applicable beginning January 1, 2004. Most commentators requested that
the applicability date be delayed until January 1, 2005, to enable trustees
and middlemen to change their reporting systems to comply with the new reporting
rules. To ensure that there is sufficient time to comply with the reporting
requirements, the final regulations provide that these regulations are effective
January 1, 2007. Accordingly, beginning with the 2007 calendar year, trustees
must report trust information in accordance with paragraph (c) of the final
regulations. Trustees and middlemen must file Forms 1099 with the IRS and
furnish tax information statements to beneficial owners that meet the requirements
of paragraphs (d) and (e) of the final regulations with respect to the 2007
calendar year and all subsequent years.

Regarding the applicability of these reporting rules to existing WHFITs,
one commentator requested that the final regulations except all WHFITs in
existence as of the effective date of the final regulations from the new reporting
rules. Other commentators requested that WHFITs in existence as of the effective
date of the final regulations be excepted from specific provisions. The final
regulations apply to all WHFITs, including those in existence as of the effective
date. However, in response to the comments, the final regulations except
certain NMWHFITs that have a start-up date on or before February 23, 2006
from specific reporting requirements regarding market discount, bond premium,
sales and dispositions, redemptions, and sales of trust interests until January
1, 2011. The details of these exceptions have been discussed in sections
II(D), III, and IV of this preamble.

Special Analysis

It has been determined that this Treasury decision is not a significant
regulatory action as defined in Executive Order 12866. Therefore, a regulatory
assessment is not required. It is hereby certified that these regulations
will not have a significant economic impact on a substantial number of small
entities. This certification is based on the fact that the regulations generally
clarify existing reporting obligations and are expected, for the most part,
to have minimal impact on industry practice, and to not have a significant
economic impact on entities subject to the regulations. Further, the reporting
burdens in these regulations will fall primarily on large brokerage firms,
large banks, and other large entities acting as trustees or middlemen, most
of which are not small entities within the meaning of the Regulatory Flexibility
Act (5 U.S.C. chapter 6). Thus, a substantial number of small entities are
not expected to be affected. Therefore, a Regulatory Flexibility Analysis
under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Code, the proposed and the Reproposed
Regulations preceding these regulations were submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on their impact
on small business.

Adoption of the Amendments to the Regulations

Accordingly, 26 CFR parts 1, 301, and 602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:

§1.671-4 Method of reporting.

(a) Portion of trust treated as owned by the grantor or another
person. Except as otherwise provided in paragraph (b) of this
section and §1.671-5, items of income, deduction, and credit attributable
to any portion of a trust that, under the provisions of subpart E (section
671 and following), part I, subchapter J, chapter 1 of the Internal Revenue
Code, is treated as owned by the grantor or another person, are not reported
by the trust on Form 1041, “U.S. Income Tax Return for Estates
and Trusts,” but are shown on a separate statement to be
attached to that form. Section 1.671-5 provides special reporting rules for
widely held fixed investment trusts. Section 301.7701-4(e)(2) of this chapter
provides guidance on how these reporting rules apply to an environmental remediation
trust.

* * * * *

Par. 3. Section 1.671-5 is added to read as follows:

§1.671-5 Reporting for widely held fixed investment
trusts.

(a) Table of contents. This table of contents
lists the major paragraph headings for this section.

(a) Table of contents.

(b) Definitions.

(c) Trustee’s obligation to report information.

(1) In general.

(i) Calculation.

(ii) Calculation period.

(iii) Accounting method.

(iv) Gross income requirement.

(2) Information to be reported by all WHFITs.

(i) Trust identification and calculation period chosen.

(ii) Items of income, expense, and credit.

(iii) Non pro-rata partial principal payments.

(iv) Asset sales and dispositions.

(v) Redemptions and sales of WHFIT interests.

(vi) Information regarding bond premium.

(vii) Information regarding market discount.

(viii) Other information.

(3) Identifying the representative who will provide trust information.

(4) Time and manner of providing information.

(i) Time.

(ii) Manner.

(iii) Inclusion of information with respect to all calculation periods.

(5) Requesting information from a WHFIT.

(i) In general.

(ii) Manner of requesting information.

(iii) Period of time during which a requesting person may request WHFIT
information.

(h) Requirement that middlemen furnish information to beneficial owners
that are exempt recipients and non calendar year beneficial owners.

(1) In general.

(2) Time for providing information.

(3) Manner of providing information.

(4) Clearing organization.

(i) Reserved.

(j) Coordination with other information reporting rules.

(k) Backup withholding requirements.

(l) Penalties for failure to comply.

(m) Effective date.

(b) Definitions. Solely for purposes of this section:

(1) An asset includes any real or personal, tangible
or intangible property held by the trust, including an interest in a contract.

(2) An affected expense is an expense described
in §1.67-2T(i)(1).

(3) A beneficial owner is a trust interest holder
(TIH) (as defined in paragraph (b)(20) of this section) that holds a beneficial
interest in a widely held fixed investment trust (WHFIT) (as defined in paragraph
(b)(22) of this section.)

(4) The calculation period is the period the trustee
chooses under paragraph (c)(1)(ii) of this section for calculating the trust
information required to be provided under paragraph (c) of this section.

(5) The cash held for distribution is the amount
of cash (other than trust sales proceeds) that would be payable to TIHs if
the amount of a distribution were required to be determined as of the date
in question.

(6) A clean-up call is the redemption of all trust
interests in termination of the WHFIT when the administrative costs of the
WHFIT outweigh the benefits of maintaining the WHFIT.

(v) A trust or an estate for which the trustee or middleman of the WHFIT
is also required to file a Form 1041, “U.S. Income Tax Return
for Estates and Trusts,” in its capacity as a fiduciary of
that trust or estate.

(8) An in-kind redemption is a redemption in which
a beneficial owner receives a pro-rata share of each
of the assets of the WHFIT that the beneficial owner is deemed to own under
section 671.

(9) An item refers to an item of income, expense,
or credit as well as any trust event (for example, the sale of an asset) or
any characteristic or attribute of the trust that affects the income, deductions,
and credits reported by a beneficial owner in any taxable year that the beneficial
owner holds an interest in the trust. An item may refer to an individual
item or a group of items depending on whether the item must be reported separately
under paragraphs (c)(1)(i) and (e)(1) of this section.

(10) A middleman is any TIH, other than a qualified
intermediary as defined in §1.1031(k)-1(g), who, at any time during the
calendar year, holds an interest in a WHFIT on behalf of, or for the account
of, another TIH, or who otherwise acts in a capacity as an intermediary for
the account of another person. A middleman includes, but is not limited to—

(i) A custodian of a person’s account, such as a bank, financial
institution, or brokerage firm acting as custodian of an account;

(ii) A nominee;

(iii) A joint owner of an account or instrument other than—

(A) A joint owner who is the spouse of the other owner; and

(B) A joint owner who is the beneficial owner and whose name appears
on the Form 1099 filed with respect to the trust interest under paragraph
(d) of this section; and

(iv) A broker (as defined in section 6045(c)(1) and §1.6045-1(a)(1)),
holding an interest for a customer in street name.

(11) A mortgage is an obligation that is principally
secured by an interest in real property within the meaning of §1.860G-2(a)(5),
except that a mortgage does not include an interest in another WHFIT or mortgages
held by another WHFIT.

(12) A non-mortgage widely held fixed investment trust (NMWHFIT)
is a WHFIT other than a widely held mortgage trust (as defined in paragraph
(b)(23) of this section).

(13) A non pro-rata partial principal
payment is any partial payment of principal received on a debt
instrument which does not retire the debt instrument and which is not a pro-rata prepayment
described in §1.1275-2(f)(2).

(14) The redemption asset proceeds equal the redemption
proceeds (as defined in paragraph (b)(15) of this section) less the cash held
for distribution with respect to the redeemed trust interest.

(15) The redemption proceeds equal the total amount
paid to a redeeming TIH as the result of a redemption of a trust interest.

(16) A requesting person is—

(i) A middleman;

(ii) A beneficial owner who is a broker;

(iii) A beneficial owner who is an exempt recipient who holds a trust
interest directly and not through a middleman;

(iv) A noncalendar-year beneficial owner who holds a trust interest
directly and not through a middleman; or

(v) A representative or agent of a person specified in this paragraph
(b)(16).

(17) The sales asset proceeds equal the sales proceeds
(as defined in paragraph (b)(18) of this section) less the cash held for distribution
with respect to the sold trust interest at the time of the sale.

(18) The sales proceeds equal the total amount
paid to a selling TIH in consideration for the sale of a trust interest.

(19) The start-up date is the date on which substantially
all of the assets have been deposited with the trustee of the WHFIT.

(20) A trust interest holder (TIH) is any person
who holds a direct or indirect interest, including a beneficial interest,
in a WHFIT at any time during the calendar year.

(21) Trust sales proceeds equal the amount paid
to a WHFIT for the sale or disposition of an asset held by the WHFIT, including
principal payments received by the WHFIT that completely retire a debt instrument
(other than a final scheduled principal payment) and pro-rata partial
principal prepayments described under §1.1275-2(f)(2). Trust sales
proceeds do not include amounts paid for any interest income that would be
required to be reported under §1.6045-1(d)(3).

(22) A widely held fixed investment trust (WHFIT)
is an arrangement classified as a trust under §301.7701-4(c) of this
chapter, provided that—

(i) The trust is a United States person under section 7701(a)(30)(E);

(ii) The beneficial owners of the trust are treated as owners under
subpart E, part I, subchapter J, chapter 1 of the Internal Revenue Code; and

(iii) At least one interest in the trust is held by a middleman.

(23) A widely held mortgage trust (WHMT) is a WHFIT,
the assets of which consist only of one or more of the following—

(i) Mortgages;

(ii) Regular interests in a REMIC;

(iii) Interests in another WHMT;

(iv) Reasonably required reserve funds;

(v) Amounts received on the assets described in paragraphs (b)(23)(i),
(ii), (iii), and (iv) of this section pending distribution to TIHs; and

(vi) During a brief initial funding period, cash and short-term contracts
for the purchase of the assets described in paragraphs (b)(23)(i), (ii), and
(iii).

(c) Trustee’s obligation to report information—(1) In
general. Upon the request of a requesting person (as defined in
paragraph (b)(16) of this section), a trustee of a WHFIT must report the information
described in paragraph (c)(2) of this section to the requesting person. The
trustee must determine such information in accordance with the following rules—

(i) Calculation. WHFIT information may be calculated
in any manner that enables a requesting person to determine with reasonable
accuracy the WHFIT items described in paragraph (c)(2) of this section that
are attributable (or, if permitted under paragraphs (c)(2)(iv)(B) or (f)(2)(iii)
of this section, distributed) to a beneficial owner for the taxable year of
that owner. The manner of calculation must generally conform with industry
practice for calculating the WHFIT items described in paragraph (c)(2) of
this section for the type of asset or assets held by the WHFIT, and must enable
a requesting person to separately state any WHFIT item that, if taken into
account separately by a beneficial owner, would result in an income tax liability
different from that which would result if the owner did not take the item
into account separately.

(ii) Calculation period—WHFIT information
may be calculated on the basis of a calendar month, calendar quarter, or half
or full calendar year, provided that a trustee uses the same calculation period
for the life of the WHFIT and the information provided by the trustee meets
the requirements of paragraph (c)(1)(i) of this section. Regardless of the
calculation period chosen by the trustee, the trustee must provide information
requested by a requesting person under paragraph (c)(5) on a calendar year
basis. The trustee may provide additional information to requesting persons
throughout the calendar year at the trustee’s discretion.

(iii) Accounting method—(A) General
rule. WHFIT information must be calculated and reported using
the cash receipts and disbursements method of accounting unless another method
is required by the Internal Revenue Code or regulations with respect to a
specific trust item. Accordingly, a trustee must provide information necessary
for TIHs to comply with the rules of subtitle A, chapter 1, subchapter P,
part V, subpart A of the Internal Revenue Code, which require the inclusion
of accrued amounts with respect to OID, and section 860B(b), which requires
the inclusion of accrued amounts with respect to a REMIC regular interest.

(B) Exception for WHFITs marketed predominantly to taxpayers
on the accrual method. If the trustee or the trust’s sponsor
knows or reasonably should know that a WHFIT is marketed primarily to accrual
method TIHs and the WHFIT holds assets for which the timing of the recognition
of income is materially affected by the use of the accrual method of accounting,
the trustee must calculate and report trust information using the accrual
method of accounting.

(iv) Gross income requirement. The amount of income
required to be reported by the trustee is the gross income (as defined in
section 61) generated by the WHFIT’s assets. Thus, in the case of a
WHFIT that receives a payment of income from which an expense (or expenses)
has been deducted, the trustee, in calculating the income to be reported under
paragraph (c)(2)(ii) of this section, must report the income earned on the
trusts assets unreduced by the deducted expense or expenses and separately
report the deducted expense or expenses. See paragraph (c)(2)(iv) of this
section regarding reporting with respect to sales and dispositions.

(2) Information to be reported by all WHFITs.
With respect to all WHFITs—

(i) Trust identification and calculation period chosen.
The trustee must report information identifying the WHFIT, including—

(A) The name of the WHFIT;

(B) The employer identification number of the WHFIT;

(C) The name and address of the trustee;

(D) The Committee on Uniform Security Identification Procedure (CUSIP)
number, account number, serial number, or other identifying number of the
WHFIT;

(E) The classification of the WHFIT as either a WHMT or NMWHFIT; and

(F) The calculation period used by the trustee.

(ii) Items of income, expense, and credit. The
trustee must report information detailing—

(iv) Asset sales and dispositions. The trustee
must report information regarding sales and dispositions of WHFIT assets as
required in this paragraph (c)(2)(iv). For purposes of this paragraph (c)(2)(iv),
a payment (other than a final scheduled payment) that completely retires a
debt instrument (including a mortgage held by a WHMT) or a pro-rata prepayment
on a debt instrument (see §1.1275-2(f)(2)) held by a WHFIT must be reported
as a full or partial sale or disposition of the debt instrument.

(A) General rule. Except as provided in paragraph
(c)(2)(iv)(B) (regarding the exception for certain NMWHFITs) or (c)(2)(iv)(C)
(regarding the exception for certain WHMTs) of this section, the trustee must
report with respect to each sale or disposition of a WHFIT asset—

(1) The date of each sale or disposition;

(2) Information that enables a requesting person
to determine the amount of trust sales proceeds (as defined in paragraph (b)(21)
of this section) attributable to a beneficial owner as a result of each sale
or disposition; and

(3) Information that enables a beneficial owner
to allocate, with reasonable accuracy, a portion of the owner’s basis
in its trust interest to each sale or disposition.

(B) Exception for certain NMWHFITs. If a NMWHFIT
meets either the general WHFIT de minimis test of paragraph
(c)(2)(iv)(D)(1) of this section for a calendar year,
or the qualified NMWHFIT exception of paragraph (c)(2)(iv)(E) of this section,
the trustee is not required to report under paragraph (c)(2)(iv)(A) of this
section. Instead, the trustee must report sufficient information to enable
a requesting person to determine the amount of trust sales proceeds distributed
to a beneficial owner during the calendar year with respect to each sale or
disposition of a trust asset. The trustee also must provide requesting persons
with a statement that the NMWHFIT is permitted to report under this paragraph
(c)(2)(iv)(B).

(C) Exception for certain WHMTs. If a WHMT meets
either of the de minimis tests of paragraph (c)(2)(iv)(D)
of this section for the calendar year, the trustee is not required to report
under paragraph (c)(2)(iv)(A) of this section. Instead, the trustee must
report information to enable a requesting person to determine the amount of
trust sales proceeds attributable to a beneficial owner as a result of the
sale or disposition. The trustee also must provide requesting persons with
a statement that the WHMT is permitted to report under this paragraph (c)(2)(iv)(C).

(D) De minimis tests—(1) General
WHFIT de minimis test. The general WHFIT de
minimis test applies to a NMWHFIT or to a WHMT that does not meet
the requirements for the special WHMT de minimis test
in paragraph (c)(2)(iv)(D)(2) of this section. The general
WHFIT de minimis test is satisfied if trust sales proceeds
for the calendar year are not more than five percent of the aggregate fair
market value of all assets held by the trust as of the later of January 1st of
that year or the trust’s start-up date (as defined in paragraph (b)(19)
of this section).

(2) Special WHMT de minimis test.
A WHMT that meets the asset requirement of paragraph (g)(1)(ii)(E) of this
section satisfies the special WHMT de minimis test in
this paragraph (c)(2)(iv)(D)(2) if trust sales proceeds
for the calendar year are not more than five percent of the aggregate outstanding
principal balance of the WHMT (as defined in paragraph (g)(1)(iii)(D) of this
section) as of the later of January 1st of that
year or the trust’s start-up date. For purposes of applying the special
WHMT de minimis test in this paragraph (c)(2)(iv)(D)(2),
amounts that result from the complete or partial payment of the outstanding
principal balance of the mortgages held by the trust are not included in the
amount of trust sales proceeds.

(3) Effect of clean-up call.
If a WHFIT fails to meet either de minimis test described
in this paragraph (c)(2)(iv)(D) solely as the result of a clean-up call, as
defined in paragraph (b)(6) of this section, the WHFIT will be treated as
having met the de minimis test.

(E) Qualified NMWHFIT exception. The qualified
NMWHFIT exception is satisfied if a NMWHFIT has a start-up date that is before
February 23, 2006 and the calendar year for which the trustee is reporting
begins before January 1, 2011.

(v) Redemptions and sales of WHFIT interests—
(A) Redemptions—(1) In
general. Unless paragraph (c)(2)(v)(C) of this section (regarding
certain NMWHFITs with dividend income) applies, for each date on which the
amount of redemption proceeds for the redemption of a trust interest is determined,
the trustee must provide information to enable a requesting person to determine—

(i) The redemption proceeds (as defined in paragraph
(b)(15) of this section) per trust interest on that date;

(ii) The redemption asset proceeds (as defined
in paragraph (b)(14) of this section) per trust interest on that date; and

(iii) The gross income that is attributable to
the redeeming beneficial owner for the portion of the calendar year that the
redeeming beneficial owner held its interest (including income earned by the
WHFIT after the date of the last income distribution).

(2) In-kind redemptions.
The value of the assets received with respect to an in-kind redemption (as
defined in paragraph (b)(8) of this section) is not required to be reported
under this paragraph (c)(2)(v)(A). Information regarding the income attributable
to a redeeming beneficial owner must, however, be reported under paragraph
(c)(2)(v)(A)(1)(iii) of this section.

(B) Sale of a trust interest—Unless paragraph
(c)(2)(v)(C) (regarding certain NMWHFITs with dividend income) of this section
applies, if a secondary market for trust interests in the WHFIT is established,
the trustee must provide, for each day of the calendar year, information to
enable a requesting person to determine—

(1) The sale asset proceeds (as defined in paragraph
(b)(17) of this section) per trust interest on that date; and

(2) The gross income that is attributable to a
selling beneficial owner and to a purchasing beneficial owner for the portion
of the calendar year that each held the trust interest.

(C) Exception for certain NMWHFITs with dividend income.
The trustee of a NMWHFIT to which this paragraph applies is not required
to report the information described in paragraph (c)(2)(v)(A) (regarding redemptions)
or (c)(2)(v)(B) (regarding sales) of this section. However, the trustee must
report to requesting persons, for each date on which the amount of redemption
proceeds to be paid for the redemption of a trust interest is determined,
information that will enable requesting persons to determine the redemption
proceeds per trust interest on that date. The trustee also must provide requesting
persons with a statement that this paragraph applies to the NMWHFIT. This
paragraph applies to a NMWHFIT if substantially all the income of the NMWHFIT
consists of dividends (as defined in section 6042(b) and the regulations thereunder)
and—

(1) The trustee is required by the governing document
of the NMWHFIT to make distributions of all cash (less reasonably required
reserve funds) held by the NMWHFIT no less frequently than monthly; or

(2) The qualified NMWHFIT exception of paragraph
(c)(2)(iv)(E) of this section is satisfied.

(vi) Information regarding bond premium. The trustee
generally must report information that enables a beneficial owner to determine,
in any manner that is reasonably consistent with section 171, the amount of
the beneficial owner’s amortizable bond premium, if any, for each calendar
year. However, if for the calendar year, a NMWHFIT meets either the general
WHFIT de minimis test of paragraph (c)(2)(iv)(D)(1)
of this section or the qualified NMWHFIT exception of paragraph (c)(2)(iv)(E)
of this section, the trustee of such NMWHFIT is not required to report information
regarding bond premium.

(vii) Information regarding market discount.
The trustee generally must report information that enables a beneficial owner
to determine, in any manner reasonably consistent with section 1276 (including
section 1276(a)(3)), the amount of the market discount that has accrued during
the calendar year. However, if for the calendar year, a NMWHFIT meets either
the general WHFIT de minimis test of paragraph (c)(2)(iv)(D)(1)
of this section or the qualified NMWHFIT exception of paragraph (c)(2)(iv)(E)
of this section, the trustee of such NMWHFIT is not required to provide information
regarding market discount.

(viii) Other information. The trustee must provide
any other information necessary for a beneficial owner of a trust interest
to report, with reasonable accuracy, the items (as defined in paragraph (b)(9)
of this section) attributable to the portion of the trust treated as owned
by the beneficial owner under section 671.

(3) Identifying the representative who will provide trust
information. The trustee must identify a representative of the
WHFIT who will provide the information specified in this paragraph (c). The
trustee also may identify an Internet website at which the trustee will provide
the information specified in this paragraph (c). This information must be
—

(i) Printed in a publication generally read by, and available to, requesting
persons;

(ii) Stated in the trust’s prospectus; or

(iii) Posted at the trustee’s Internet website.

(4) Time and manner of providing information—(i) Time—(A) In
general. Except as provided in paragraph (c)(4)(i)(B) of this
section, a trustee must provide the information specified in this paragraph
(c) to requesting persons on or before the later of—

(1) The 30th day after
the close of the calendar year to which the request relates; or

(2) The day that is 14 days after the receipt of
the request.

(B) Trusts holding interests in other WHFITs or in REMICs.
If the WHFIT holds an interest in one or more other WHFITs or holds one or
more REMIC regular interests, or holds both, a trustee must provide the information
specified in this paragraph (c) to requesting persons on or before the later
of—

(1) The 44th day after
the close of the calendar year to which the request relates; or

(2) The day that is 28 days after the receipt of
the request.

(ii) Manner. The information specified in this
paragraph (c) must be provided—

(A) By written statement sent by first class mail to the address provided
by the requesting person;

(B) By causing it to be printed in a publication generally read by and
available to requesting persons and by notifying requesting persons in writing
of the publication in which it will appear, the date on which it will appear,
and, if possible, the page on which it will appear;

(C) By causing it to be posted at an Internet website, provided the
trustee identifies the website under paragraph (c)(3) of this section;

(D) By electronic mail provided that the requesting person requests
that the trustee furnish the information by electronic mail and the person
furnishes an electronic address; or

(E) By any other method agreed to by the trustee and the requesting
person.

(iii) Inclusion of information with respect to all calculation
periods. If a trustee calculates WHFIT information using a calculation
period other than a calendar year, the trustee must provide information for
each calculation period that falls within the calendar year requested.

(5) Requesting information from a WHFIT—(i) In
general. Requesting persons may request the information specified
in this paragraph (c) from a WHFIT.

(ii) Manner of requesting information. In requesting
WHFIT information, a requesting person must specify the WHFIT and the calendar
year for which information is requested.

(iii) Period of time during which a requesting person may
request WHFIT information. For the life of the WHFIT and for five
years following the date of the WHFIT’s termination, a requesting person
may request the information specified in this paragraph (c) for any calendar
year of the WHFIT’s existence beginning with the 2007 calendar year.

(6) Trustee’s requirement to retain records.
For the life of the WHFIT and for five years following the date of termination
of the WHFIT, the trustee must maintain in its records a copy of the information
required to be provided to requesting persons under this paragraph (c) for
each calendar year beginning with the 2007 calendar year. For a period of
five years following the close of the calendar year to which the data pertains,
the trustee also must maintain in its records such supplemental data as may
be necessary to establish that the information provided to requesting persons
is correct and meets the requirements of this paragraph (c).

(d) Form 1099 requirement for trustees and middlemen—(1) Obligation
to file Form 1099 with the IRS—(i) In general.
Except as provided in paragraphs (d)(1)(ii) and (iii) of this section—

(A) The trustee must file with the IRS the appropriate Forms 1099, reporting
the information specified in paragraph (d)(2) of this section with respect
to any TIH who holds an interest in the WHFIT directly and not through a middleman;
and

(B) Every middleman must file with the IRS the appropriate Forms 1099,
reporting the information specified in paragraph (d)(2) of this section with
respect to any TIH on whose behalf or account the middleman holds an interest
in the WHFIT or acts as an intermediary.

(ii) Forms 1099 not required for exempt recipients—(A) In
general. A Form 1099 is not required with respect to a TIH who
is an exempt recipient (as defined in paragraph (b)(7) of this section), unless
the trustee or middleman backup withholds under section 3406 on payments made
to an exempt recipient (because, for example, the exempt recipient has failed
to furnish a Form W-9 on request). If the trustee or middleman backup withholds,
then the trustee or middleman is required to file a Form 1099 under this paragraph
(d) unless the trustee or middleman refunds the amount withheld in accordance
with §31.6413(a)-3 of this chapter.

(B) Exempt recipients must include WHFIT information in computing
taxable income. A beneficial owner who is an exempt recipient
must obtain WHFIT information and must include the items (as defined in paragraph
(b)(9) of this section) of the WHFIT in computing its taxable income on its
federal income tax return. Paragraphs (c)(3) and (h) of this section provide
rules for exempt recipients to obtain information from a WHFIT.

(iii) Reporting and withholding with respect to foreign persons.
The items of the WHFIT attributable to a TIH who is not a United States person
must be reported, and amounts must be withheld, as provided under subtitle
A, chapter 3 of the Internal Revenue Code (sections 1441 through 1464) and
the regulations thereunder and not reported under this paragraph (d).

(2) Information to be reported—(i) Determining
amounts to be provided on Forms 1099. The amounts reported to
the IRS for a calendar year by a trustee or middleman on the appropriate Form
1099 must be consistent with the information provided by the trustee under
paragraph (c) of this section and must reflect with reasonable accuracy the
amount of each item required to be reported on a Form 1099 that is attributable
(or if permitted under paragraphs (d)(2)(ii)(D) and (E) of this section, distributed)
to the TIH. If the trustee, in providing WHFIT information, uses the safe
harbors in paragraph (f)(1) or (g)(1) of this section, then the trustee or
middleman must calculate the information to be provided to the IRS on the
Forms 1099 in accordance with paragraph (f)(2) or (g)(2) of this section,
as appropriate.

(ii) Information to be provided on Forms 1099.
The trustee or middleman must include on the appropriate Forms 1099:

(A) Taxpayer information. The name, address, and
taxpayer identification number of the TIH;

(B) Information regarding the person filing the Form 1099.
The name, address, taxpayer identification number, and telephone number of
the person required to file the Form 1099;

(C) Gross income. All items of gross income of
the WHFIT attributable to the TIH for the calendar year (including OID and
all amounts of income attributable to a selling, purchasing, or redeeming
TIH for the portion of the calendar year that the TIH held its interest (unless
paragraph (c)(2)(v)(C) of this section (regarding certain NMWHFITs with dividend
income) applies));

(D) Non pro-rata partial principal payments. All
non pro-rata partial principal payments (as defined in
paragraph (b)(13) of this section) received by the WHFIT that are attributable
(or distributed, in the case of a trustee or middleman reporting under paragraph
(f)(2)(iii) of this section) to the TIH;

(E) Trust sales proceeds. All trust sales proceeds
(as defined in paragraph (b)(21) of this section) that are attributable to
the TIH for the calendar year, if any, or, if paragraph (c)(2)(iv)(B) of this
section (regarding certain NMWHFITs) applies, the amount of trust sales proceeds
distributed to the TIH for the calendar year;

(F) Reporting redemptions. All redemption asset
proceeds (as defined in paragraph (b)(14) of this section) paid to the TIH
for the calendar year, if any, or, if paragraph (c)(2)(v)(C) of this section
(regarding certain NMWHFITs with dividend income) applies, all redemption
proceeds (as defined in paragraph (b)(15) of this section) paid to the TIH
for the calendar year;

(G) Reporting sales of a trust interest on a secondary market.
All sales asset proceeds (as defined in paragraph (b)(17) of this section)
paid to a TIH for the sale of a trust interest or interests on a secondary
market established for the WHFIT for the calendar year, if any, or, if paragraph
(c)(2)(v)(C) of this section (regarding certain NMWHFITs with dividend income)
applies, all sales proceeds (as defined in paragraph (b)(18) of this section)
paid to the TIH for the calendar year; and

(H) Other information. Any other information
required by the Form 1099.

(3) Time and manner of filing Forms 1099—(i) Time
and place. The Forms 1099 required to be filed under this paragraph
(d) must be filed on or before February 28 (March 31, if filed electronically)
of the year following the year for which the Forms 1099 are being filed.
The returns must be filed with the appropriate Internal Revenue Service Center,
at the address listed in the instructions for the Forms 1099. For extensions
of time for filing returns under this section, see §1.6081-1, the instructions
for the Forms 1099, and applicable revenue procedures (see §601.601(d)(2)
of this chapter). For magnetic media filing requirements, see §301.6011-2
of this chapter.

(B) Appropriate reporting for in-kind redemptions.
The value of the assets distributed with respect to an in-kind redemption
is not required to be reported to the IRS. Unless paragraph (c)(2)(v)(C)
of this section applies, the trustee or middleman must report the gross income
attributable to the redeemed trust interest for the calendar year up to the
date of the redemption under paragraph (d)(2)(ii)(C) of this section.

(e) Requirement to furnish a written tax information statement
to the TIH—(1) In general. Every trustee
or middleman required to file appropriate Forms 1099 under paragraph (d) of
this section with respect to a TIH must furnish to that TIH (the person whose
identifying number is required to be shown on the form) a written tax information
statement showing the information described in paragraph (e)(2) of this section.
The amount of a trust item reported to a TIH under this paragraph (e) must
be consistent with the information reported to the IRS with respect to the
TIH under paragraph (d) of this section. Information provided in this written
statement must be determined in accordance with the rules provided in paragraph
(d)(2)(i) of this section (regardless of whether the information was required
to be provided on a Form 1099). Further, the trustee or middleman must separately
state on the written tax information statement any items that, if taken into
account separately by that TIH, would result in an income tax liability that
is different from the income tax liability that would result if the items
were not taken into account separately.

(2) Information required. For the calendar year,
the written tax information statement must meet the following requirements:

(i) WHFIT information. The written tax information
statement must include the name of the WHFIT and the identifying number of
the WHFIT;

(ii) Identification of the person furnishing the statement.
The written tax information statement must include the name, address, and
taxpayer identification number of the person required to furnish the statement;

(iii) Items of income, expense, and credit. The
written tax information statement must include information regarding the items
of income (that is, the information required to be reported to the IRS on
Forms 1099), expense (including affected expenses), and credit that are attributable
to the TIH for the calendar year;

(iv) Non pro-rata partial principal payments.
The written tax information statement must include the information required
to be reported to the IRS on Forms 1099 under paragraph (d)(2)(ii)(D) of this
section (regarding the non pro-rata partial principal
payments that are attributable (or distributed, in the case of a trustee or
middleman reporting under paragraph (f)(2)(iii) of this section) to the TIH
for the calendar year).

(v) Asset sales and dispositions—(A) General
rule. Unless paragraph (c)(2)(iv)(B) (regarding the exception
for certain NMWHFITs) or (c)(2)(iv)(C) (regarding the exception for certain
WHMTs) of this section applies, the written tax information statement must
include, with respect to each sale or disposition of a WHFIT asset for the
calendar year—

(1) The date of sale or disposition;

(2) Information regarding the trust sales proceeds
that are attributable to the TIH as a result of the sale or disposition; and

(3) Information that will enable the TIH to allocate
with reasonable accuracy a portion of the TIH’s basis in the TIH’s
trust interest to the sale or disposition.

(B) Special rule for certain NMWHFITs and WHMTs.
In the case of a NMWHFIT to which paragraph (c)(2)(iv)(B) of this section
applies or in the case of a WHMT to which paragraph (c)(2)(iv)(C) of this
section applies, the written tax information statement must include, with
respect to asset sales and dispositions, only the information required to
be reported to the IRS on Form 1099 under paragraph (d)(2)(ii)(E) of this
section.

(vi) Redemption or sale of a trust interest. The
written tax information statement must include the information required to
be reported to the IRS on Forms 1099 under paragraphs (d)(2)(ii)(F) and (G)
of this section (regarding the sales and redemptions of trust interests made
by the TIH for the calendar year);

(vii) Information regarding market discount and bond premium.
The written tax information statement must include the information required
to be reported by the trustee under paragraphs (c)(2)(vi) and (vii) of this
section (regarding bond premium and market discount);

(viii) Other information. The written tax information
statement must include any other information necessary for the TIH to report,
with reasonable accuracy for the calendar year, the items (as defined in paragraph
(b)(9) of this section) attributable to the portion of the trust treated as
owned by the TIH under section 671. The written tax information statement
may include information with respect to a trust item on a per trust interest
basis if the trustee has reported (or calculated) the information with respect
to that item on a per trust interest basis and information with respect to
that item is not required to be reported on a Form 1099; and

(ix) Required statement. The written tax information
statement must inform the TIH that the items of income, deduction, and credit,
and any other information shown on the statement must be taken into account
in computing the taxable income and credits of the TIH on the Federal income
tax return of the TIH. If the written tax information statement reports that
an amount of qualified dividend income is attributable to the TIH, the written
tax information statement also must inform the TIH that the TIH must meet
the requirements of section 1(h)(11)(B)(iii) to treat the dividends as qualified
dividends.

(3) Due date and other requirements. The written
tax information statement must be furnished to the TIH on or before March
15 of the year following the calendar year for which the statement is being
furnished.

(4) Requirement to retain records. For a period
of no less than five years from the due date for furnishing the written tax
information statement, a trustee or middleman must maintain in its records
a copy of any written tax information statement furnished to a TIH, and such
supplemental data as may be required to establish the correctness of the statement.

(f) Safe harbor for providing information for certain NMWHFITs—(1) Safe
harbor for trustee reporting of NMWHFIT information. The trustee
of a NMWHFIT that meets the requirements of paragraph (f)(1)(i) of this section
is deemed to satisfy paragraph (c)(1)(i) of this section, if the trustee calculates
and provides WHFIT information in the manner described in this paragraph (f)
and provides a statement to a requesting person giving notice that information
has been calculated in accordance with this paragraph (f)(1).

(i) In general—(A) Eligibility
to report under this safe harbor. Only NMWHFITs that meet the
requirements set forth in paragraphs (f)(1)(i)(A)(1)
and (2) of this section may report under this safe harbor.

(1) Substantially all of the NMWHFIT’s income
is from dividends (as defined in section 6042(b) and the regulations thereunder)
or interest (as defined in section 6049(b) and the regulations thereunder);
and

(2) All trust interests have identical value and
rights

(B) Consistency Requirements. The trustee must—

(1) Calculate all trust items subject to the safe
harbor consistent with the safe harbor; and,

(2) Report under this paragraph (f)(1) for the
life of the NMWHFIT; or, if the NMWHFIT has a start-up date before January
1, 2007, the NMWHFIT must begin reporting under this paragraph (f)(1) as of
January 1, 2007 and must continue to report under this paragraph for the life
of the NMWHFIT.

(ii) Reporting NMWHFIT income and expenses. A
trustee must first determine the total amount of NMWHFIT distributions (both
actual and deemed) for the calendar year and then express each income or expense
item as a fraction of the total amount of NMWHFIT distributions. These fractions
(hereinafter referred to as factors) must be accurate to at least four decimal
places.

(A) Step One: Determine the total amount of NMWHFIT distributions
for the calendar year. The trustee must determine the total amount
of NMWHFIT distributions (actual and deemed) for the calendar year. If the
calculation of the total amount of NMWHFIT distributions under this paragraph
(f)(1)(ii)(A) results in a zero or a negative number, the trustee may not
determine income and expense information under this paragraph (f)(1)(ii)(A)
(but may report all other applicable items under this paragraph (f)(1)).
The total amount of NMWHFIT distributions equals the amount of NMWHFIT funds
paid out to all TIHs (including all trust sales proceeds, all principal receipts,
and all redemption proceeds) for the calendar year—

(1) Increased by—

(i) All amounts that would have been distributed
during the calendar year, but were instead reinvested pursuant to a reinvestment
plan; and

(ii) All cash held for distribution to TIHs as
of December 31 of the year for which the trustee is reporting; and

(2) Decreased by—

(i) All cash distributed during the current year
that was included in a year-end cash allocation factor (see paragraph (f)(1)(ii)(C)(2)
of this section) for a prior year;

(ii) All redemption asset proceeds paid for the
calendar year, or if paragraph (c)(2)(v)(C) of this section applies to the
NMWHFIT, all redemption proceeds paid for the calendar year;

(iii) All trust sales proceeds distributed during
the calendar year; and

(3) For the purpose of determining the amount
of all redemption asset proceeds or redemption proceeds paid for the calendar
year with respect to paragraph (f)(1)(ii)(A)(2)(ii)
of this section, the value of the assets (not including cash) distributed
with respect to an in-kind redemption is disregarded. Any cash distributed
as part of the redemption must be included in the total amount of NMWHFIT
distributions.

(B) Step Two: Determine factors that express the ratios of
NMWHFIT income and expenses to the total amount of NMWHFIT distributions.
The trustee must determine factors that express the ratios of NMWHFIT income
and expenses to the total amount of NMWHFIT distributions as follows:

(1) Income factors. For each
item of income generated by the NMWHFIT’s assets for the calendar year,
the trustee must determine the ratio of the gross amount of that item of income
to the total amount of NMWHFIT distributions for the calendar year; and

(2) Expense factors. For
each item of expense paid by a NMWHFIT during the calendar year, the trustee
must determine the ratio of the gross amount of that item of expense to the
total amount of NMWHFIT distributions for the calendar year.

(C) Step Three: Determine adjustments for reconciling the
total amount of NMWHFIT distributions (determined under Step One) with amounts
actually paid to TIHs. Paragraph (f)(1)(ii)(B) of this section
(Step Two) requires an item of income or expense to be expressed as a ratio
of that item to the total amount of NMWHFIT distributions as determined in
paragraph (f)(1)(ii)(A) of this section (Step One). A TIH’s share of
the total amount of NMWHFIT distributions may differ from the amount actually
paid to that TIH. A trustee, therefore, must provide information that can
be used to compute a TIH’s share of the total amount of NMWHFIT distributions
based on the amount actually paid to the TIH. A trustee satisfies this requirement
by providing a current year-end cash allocation factor, a prior year cash
allocation factor, and the date on which the prior year cash was distributed
to TIHs (prior year cash distribution date).

(1) The current year-end cash allocation
factor. The current year-end cash allocation factor is the amount
of cash held for distribution to TIHs by the NMWHFIT as of December 31 of
the calendar year for which the trustee is reporting, divided by the number
of trust interests outstanding as of that date.

(2) The prior year cash allocation factor.
The prior year cash allocation factor is the amount of the distribution during
the calendar year for which the trustee is reporting that was included in
determining a year-end cash allocation factor for a prior year, divided by
the number of trust interests outstanding on the date of the distribution.

(iii) Reporting non pro-rata partial principal payments under
the safe harbor. The trustee must provide a list of dates on which
non pro-rata partial principal payments were distributed
by the trust, and the amount distributed, per trust interest.

(iv) Reporting sales and dispositions of NMWHFIT assets under
the safe harbor—(A) NMWHFITs that must report under
the general rule—(1) In general.
If a NMWHFIT must report under the general rule of paragraph (c)(2)(iv)(A)
of this section, the trustee must provide a list of dates (from earliest to
latest) on which sales or dispositions of NMWHFIT assets occurred during the
calendar year for which the trustee is reporting and, for each date identified,
provide—

(i) The trust sales proceeds received by the trust,
per trust interest, with respect to the sales and dispositions, on that date;

(ii) The trust sales proceeds distributed to TIHs,
per trust interest, with respect to the sales and dispositions on that date,
and the date that the trust sales proceeds were distributed to the TIHs; and

(iii) The ratio (expressed as a percentage) of
the assets sold or disposed of on that date to all assets held by the NMWHFIT.

(2) Determination of the ratio of the
assets sold or disposed of—

(i) If a NMWHFIT terminates within twenty-four
months of its start-up date, the ratio of the assets sold or disposed of on
that date to all assets held by the NMWHFIT is based on the fair market value
of the NMWHFIT’s assets as of the start-up date; or

(ii) If a NMWHFIT terminates more than twenty-four
months after its start-up date, the ratio of the assets sold or disposed of
on that date to all assets held by the NMWHFIT is based on the fair market
value of the NMWHFIT’s assets as of the date of the sale or disposition.

(B) NMWHFITs excepted from the general rule. If
paragraph (c)(2)(iv)(B) of this section applies to the NMWHFIT, the trustee
must provide a list of dates on which trust sales proceeds were distributed,
and the amount of trust sales proceeds, per trust interest, that were distributed
on that date. The trustee also must also provide requesting persons with
the statement required by paragraph (c)(2)(iv)(B) of this section.

(v) Reporting redemptions under the safe harbor—(A) In
general. The trustee must:

(1) Provide a list of dates on which the amount
of redemption proceeds paid for the redemption of a trust interest was determined
and the amount of the redemption asset proceeds determined per trust interest
on that date, or if paragraph (c)(2)(v)(C) of this section applies to the
NMWHFIT, the amount of redemption proceeds determined on that date; or

(2) Provide to each requesting person that held
(either for its own behalf or for the behalf of a TIH) a trust interest that
was redeemed during the calendar year, the date of the redemption and the
amount of the redemption asset proceeds per trust interest determined on that
date, or if paragraph (c)(2)(v)(C) of this section applies to the NMWHFIT,
the amount of the redemption proceeds determined for that date; and

(B) Paragraph (c)(2)(v)(C) statement. If paragraph
(c)(2)(v)(C) of this section applies to the NMWHFIT, the trustee must provide
a statement to requesting persons to the effect that the trustee is providing
information consistent with paragraph (c)(2)(v)(C) of this section.

(vi) Reporting the sale of a trust interest under the safe
harbor. If paragraph (c)(2)(v)(C) of this section does not apply
to the NMWHFIT, the trustee must provide, for each day of the calendar year,
the amount of cash held for distribution, per trust interest, by the NMWHFIT
on that date. If the trustee is able to identify the date on which trust
interests were sold on the secondary market, the trustee alternatively may
provide information for each day on which sales of trust interests occurred
rather than for each day during the calendar year. If paragraph (c)(2)(v)(C)
of this section applies to the NMWHFIT, the trustee is not required to provide
any information under this paragraph (f)(1)(vi), other than a statement that
the NMWHFIT meets the requirements to report under paragraph (c)(2)(v)(C)
of this section.

(vii) Reporting OID information under the safe harbor.
The trustee must provide, for each calculation period, the average aggregate
daily accrual of OID per $1,000 of original principal amount.

(viii) Reporting market discount information under the safe
harbor—(A) In general. If the trustee
of a NMWHFIT is required to provide information regarding market discount
under paragraph (c)(2)(vii) of this section, the trustee must provide the
information required under paragraph (f)(1)(iv)(A)(1)(iii)
of this section. If the trustee is not required to provide market discount
information under paragraph (c)(2)(vii) of this section (because the NMWHFIT
meets either the de minimis test of paragraph (c)(2)(iv)(D)
of this section, or the qualified NMWHFIT exception of paragraph (c)(2)(iv)(E)
of this section), the trustee is not required under this paragraph (f) to
provide any information regarding market discount.

(B) Reporting market discount information under the safe harbor
when the yield of the debt obligations held by the WHFIT is expected to be
affected by prepayments. [Reserved.]

(x) Reporting additional information. If a requesting
person cannot use the information provided by the trustee under paragraphs
(f)(1)(ii) through (ix) of this section to determine with reasonable accuracy
the trust items that are attributable to a TIH, the requesting person must
request, and the trustee must provide, additional information to enable the
requesting person to determine the trust items that are attributable to the
TIH. See, for example, paragraph (f)(2)(ii)(A)(4) of
this section which requires a middleman to request additional information
from the trustee when the total amount of WHFIT distributions attributable
to a TIH equals zero or less.

(2) Use of information provided by trustees under the safe
harbor for NMWHFITs—(i) In general.
If a trustee reports NMWHFIT items in accordance with paragraph (f)(1) of
this section, the information provided with respect to those items on the
Forms 1099 required under paragraph (d) of this section to be filed with the
IRS and on the statement required under paragraph (e) of this section to be
furnished to the TIH must be determined as provided in this paragraph (f)(2).

(ii) Determining NMWHFIT income and expense under the safe
harbor. The trustee or middleman must determine the amount of
each item of income and expense attributable to a TIH as follows—

(A) Step One: Determine the total amount of NMWHFIT distributions
attributable to the TIH. To determine the total amount of NMWHFIT
distributions attributable to a TIH for the calendar year, the total amount
paid to, or credited to the account of, the TIH during the calendar year (including
amounts paid as trust sales proceeds, partial non pro-rata principal
payments, redemption proceeds, and sales proceeds) is—

(1) Increased by—

(i) All amounts that would have been distributed
during the calendar year to the TIH, but that were reinvested pursuant to
a reinvestment plan (unless another person (for example, the custodian of
the reinvestment plan) is responsible for reporting these amounts under paragraph
(d) of this section); and

(ii) An amount equal to the current year-end cash
allocation factor (provided by the trustee in accordance with paragraph (f)(1)(ii)(C)(1)
of this section) multiplied by the number of trust interests held by the TIH
as of December 31 of the calendar year for which the trustee is reporting;
and

(2) Decreased by—

(i) An amount equal to the prior year cash allocation
factor (provided by the trustee in accordance with paragraph (f)(1)(ii)(C)(2)
of this section) multiplied by the number of trust interests held by the TIH
on the prior year cash distribution date;

(ii) An amount equal to all redemption asset proceeds
paid to the TIH for the calendar year, or if paragraph (c)(2)(v)(C) of this
section applies to the NMWHFIT, an amount equal to all redemption proceeds
paid to the TIH for the calendar year;

(iii) An amount equal to all sale asset proceeds
paid to the TIH for the calendar year, or if paragraph (c)(2)(v)(C) of this
section applies to the NMWHFIT, the amount of sales proceeds paid to the TIH
for the calendar year;

(iv) In the case of a TIH that purchased a trust
interest in a NMWHFIT to which paragraph (c)(2)(v)(C) of this section does
not apply, an amount equal to the cash held for distribution per trust interest
on the date that the TIH acquired its interest, multiplied by the trust interests
acquired on that date;

(v) The amount of the trust sales proceeds distributed
to the TIH, calculated as provided in paragraph (f)(2)(iv)(A)(3)
of this section; and

(vi) The amount of non pro-rata partial
principal prepayments distributed to the TIH during the calendar year, calculated
as provided in paragraph (f)(2)(iii) of this section.

(3) Treatment of in-kind distributions
under this paragraph (f)(2)(ii). The value of the assets (not
including cash) received with respect to an in-kind redemption is not included
in the amount used in paragraph (f)(2)(ii)(A)(2)(ii)
of this section. The cash distributed as part of the redemption, however,
must be included in the total amount of NMWHFIT distributions paid to the
TIH.

(4) The total amount of distributions
attributable to a TIH calculated under this paragraph (f)(2)(ii)(A) equals
zero or less. If the total amount of distributions attributable
to a TIH, calculated under this paragraph (f)(2)(ii)(A), equals zero or less,
the trustee or middleman may not report the income and expense attributable
to the TIH under this paragraph (f)(2)(ii). The trustee or middleman must
request additional information from the trustee of the NMWHFIT to enable the
trustee or middleman to determine with reasonable accuracy the items of income
and expense that are attributable to the TIH. The trustee or middleman must
report the other items subject to paragraph (f)(1) of this section in accordance
with this paragraph (f)(2).

(B) Step Two: Apply the factors provided by the trustee to
determine the items of income and expense that are attributable to the TIH.
The amount of each item of income (other than OID) and each item of expense
attributable to a TIH is determined as follows—

(1) Application of income factors.
For each income factor, the trustee or middleman must multiply the income
factor by the total amount of NMWHFIT distributions attributable to the TIH
for the calendar year (as determined in paragraph (f)(2)(ii)(A) of this section).

(2) Application of expense factors.
For each expense factor, the trustee or middleman must multiply the expense
factor by the total amount of NMWHFIT distributions attributable to the TIH
for the calendar year (as determined in paragraph (f)(2)(ii)(A) of this section).

(iii) Reporting non pro-rata partial principal payments under
the safe harbor. To determine the amount of non pro-rata partial
principal payments that are distributed to a TIH for the calendar year, the
trustee or middleman must aggregate the amount of non pro-rata partial
principal payments distributed to a TIH for each day that non pro-rata principal
payments were distributed. To determine the amount of non pro-rata principal
payments that are distributed to a TIH on each distribution date, the trustee
or middleman must multiply the amount of non-pro rata principal
payments per trust interest distributed on that date by the number of trust
interests held by the TIH.

(iv) Reporting sales and dispositions of NMWHFIT assets under
the safe harbor—(A) Reporting under the safe harbor
if the general rules apply to the NMWHFIT. Unless paragraph (c)(2)(iv)(B)
of this section applies, the trustee or middleman must comply with paragraphs
(f)(2)(iv)(A)(1), (2), and (3)
of this section.

(1) Form 1099. The trustee
or middleman must report the amount of trust sales proceeds attributable to
the TIH for the calendar year on Form 1099. To determine the amount of trust
sales proceeds attributable to a TIH for the calendar year, the trustee or
middleman must aggregate the total amount of trust sales proceeds attributable
to the TIH for each date on which the NMWHFIT sold or disposed of an asset
or assets. To determine the total amount of trust sales proceeds attributable
to a TIH for each date that the NMWHFIT sold or disposed of an asset or assets,
the trustee or middleman multiplies the amount of trust sales proceeds received
by the NMWHFIT per trust interest on that date by the number of trust interests
held by the TIH on that date.

(2) The written tax information statement
furnished to the TIH. The written tax information statement required
to be furnished to the TIH under paragraph (e) of this section must include
a list of dates (in order, from earliest to latest) on which sales or dispositions
of trust assets occurred during the calendar year and provide, for each date
identified—

(i) The trust sales proceeds received by the trust,
per trust interest, with respect to the sales or dispositions of trust assets
on that date; and

(ii) The information provided by the trustee under
paragraph (f)(1)(iv)(B)(2) of this section regarding
the ratio of the assets sold or disposed of on that date to all the assets
of the NMWHFIT held on that date, prior to such sale or disposition.

(3) Calculating the total amount of trust
sales proceeds distributed to the TIH. To determine the total
amount of NMWHFIT distributions attributable to a TIH, the trustee or middleman
must calculate the amount of trust sales proceeds distributed to the TIH for
the calendar year. (See paragraph (f)(2)(ii)(A)(2)(v)
of this section.) To determine the amount of trust sales proceeds distributed
to a TIH for the calendar year, the trustee or middleman must aggregate the
total amount of trust sales proceeds distributed to the TIH for each date
on which the NMWHFIT distributed trust sales proceeds. To determine the total
amount of trust sales proceeds distributed to a TIH for each date that the
NMWHFIT distributed trust sales proceeds, the trustee or middleman must multiply
the amount of trust sales proceeds distributed by the NMWHFIT per trust interest
on that date by the number of trust interests held by the TIH on that date.

(B) Reporting under the safe harbor if paragraph (c)(2)(iv)(B)
of this section applies to the NMWHFIT. If paragraph (c)(2)(iv)(B)
of this section applies, the trustee or middleman must calculate, in the manner
provided in paragraph (f)(2)(iv)(A)(3) of this section,
the amount of trust sales proceeds distributed to the TIH for the calendar
year. The trustee or middleman must report this amount on the Form 1099 filed
for the TIH and on the written tax information statement furnished to the
TIH.

(v) Reporting redemptions under the safe harbor—(A)
Except as provided in paragraph (f)(2)(v)(B) or (C) of this section, if the
trustee has provided a list of dates for which the amount of the redemption
proceeds to be paid for the redemption of a trust interest was determined
and the redemption asset proceeds paid for that date, the trustee or middleman
must multiply the redemption asset proceeds determined per trust interest
for that date by the number of trust interests redeemed by the TIH on that
date.

(B) If paragraph (c)(2)(v)(C) of this section applies, and the trustee
has provided a list of dates for which the amount of the redemption proceeds
to be paid for the redemption of a trust interest was determined and the redemption
proceeds determined per trust interest on each date, the trustee or middleman
must multiply the redemption proceeds per trust interest for each date by
the number of trust interests redeemed by the TIH on that date.

(C) If the trustee has provided the requesting person with information
regarding the redemption asset proceeds paid for each redemption of a trust
interest held by the middleman for the calendar year, or if paragraph (c)(2)(v)(C)
of this section applies and the trustee has provided the amount of redemption
proceeds paid for each redemption of a trust interest held by the middleman
during the calendar year, the requesting person may use this information to
determine the amount of the redemption asset proceeds or redemption proceeds
paid to the TIH for the calendar year.

(vi) Reporting sales of trust interests under the safe harbor—(A)
Except as provided in paragraph (f)(2)(vi)(B) of this section, the trustee
or middleman must subtract the amount of cash held for distribution per trust
interest on the date of the sale from the sales proceeds paid to the TIH to
determine the sale asset proceeds that are to be reported to the TIH for each
sale of a trust interest.

(B) If paragraph (c)(2)(v)(C) of this section applies, the trustee or
middleman must report the sales proceeds paid to the TIH as a result of each
sale of a trust interest.

(vii) Reporting OID information under the safe harbor—The
trustee or middleman must aggregate the amounts of OID that are allocable
to each trust interest held by a TIH for each calculation period. The amount
of OID that is allocable to a trust interest, with respect to each calculation
period, is determined by multiplying—

(A) The product of the OID factor and the original principal balance
of the trust interest, divided by 1,000; by

(B) The number of days during the calculation period in that calendar
year that the TIH held the trust interest.

(viii) Reporting market discount information under the safe
harbor—(A) Except as provided in paragraph (f)(2)(viii)(B)
of this section, the trustee or middleman must provide the TIH with the information
provided under paragraph (f)(1)(viii) of this section.

(B) If paragraph (c)(2)(iv)(B) of this section applies, the trustee
and middleman are not required under this paragraph (f)(2) to provide any
information regarding market discount.

(3) Example of the use of the safe harbor for NMWHFITs.
The following example illustrates the use of the factors in this paragraph
(f) to calculate and provide NMWHFIT information:

Example: (i) Facts—(A) In
general—(1) Trust is a NMWHFIT that
holds common stock in ten different corporations and has 100 trust interests
outstanding. The start-up date for Trust is December 15, 2006, and the termination
date for Trust is March 15, 2008. The agreement governing Trust requires
Trust to distribute the cash held by Trust reduced by accrued but unpaid expenses
on April 15, July 15, and October 15 of the 2007 calendar year. The agreement
also provides that the trust interests will be redeemed by the Trust for an
amount equal to the value of the trust interest, as of the close of business,
on the day that the trust interest is tendered for redemption. There is no
reinvestment plan. A secondary market for interests in Trust will be created
by Trust’s sponsor and Trust’s sponsor will provide Trustee with
a list of dates on which sales occurred on this secondary market.

(2) As of December 31, 2006, Trust holds $12x for
distribution to TIHs on the next distribution date and has no accrued but
unpaid expenses. Trustee includes the $12x in determining the year-end cash
allocation factor for December 31, 2006.

(B) Events occurring during the 2007 calendar year—
(1) As of January 1, 2007, Broker1 holds ten trust interests
in Trust in street name for each of J and A and
Broker2 holds ten trust interests in Trust in street name for S.
J, A, and S are
individual, cash method taxpayers.

(2) As of January 1, 2007, the fair market value
of the Trust’s assets equals $10,000x.

(3) During 2007, Trust receives $588x in dividend
income. Trustee determines that $400x of the dividend income received during
2007 meets the definition of a qualified dividend in section 1(h)(11)(B)(i)
and the holding period requirement in section 1(h)(11)(B)(iii) with respect
to the Trust. During 2007, Trust also receives $12x in interest income from
investment of Trust’s funds pending distribution to TIHs, and pays $45x
in expenses, all of which are affected expenses.

(4) On April 15, 2007, Trustee distributes $135x,
which includes the $12x included in determining the year-end cash allocation
factor for December 31, 2006. As a result of the distribution, Broker1 credits J’s
account and A’s account for $13.50x each. Broker2
credits S’s account for $13.50x.

(5) On June 1, 2007, Trustee sells shares of stock
for $1000x to preserve the soundness of the trust. The stock sold on June
1, 2007, equaled 20% of the aggregate fair market value of the assets held
by Trust on the start-up date of Trust.

(6) On July 15, 2007, Trustee distributes $1,135x,
which includes the $1,000x of trust sales proceeds received by Trust for the
sale of assets on June 1, 2007. As a result of the distribution, Broker1
credits J’s account and A’s
account for $113.50x each. Broker2 credits S’s
account for $113.50x.

(7) On September 30 2007, J,
through Trust’s sponsor, sells a trust interest to S for
$115.35x. Trustee determines that the cash held for distribution per trust
interest on September 30 is $1.35x. As a result of the sale, Broker1 credits J’s
account for $115.35x.

(8) On October 15, 2007, Trustee distributes $123x.
As a result of the distribution, Broker1 credits J’s
account for $11.07x and A’s account for $12.30x.
Broker2 credits S’s account for $13.53x.

(9) On December 10, 2007, J tenders
a trust interest to Trustee for redemption through Broker1. Trustee determines
that the amount of the redemption proceeds to be paid for a trust interest
that is tendered for redemption on December 10, 2007, is $116x, of which $115x
represents the redemption asset proceeds. On December 12, 2007, Trustee sells
shares of common stock for $115x to have sufficient cash to pay J’s
redemption proceeds. The stock sold on December 12, 2007, equaled 2% of the
aggregate fair market value of all the assets of Trust as of the start up
date. On December 17, 2007, Trustee pays the $116x redemption proceeds (including
the $115x trust sales proceeds received by Trust for the sale of the stock
on December 12) to Broker1 on J’s behalf, and Broker1
in turn pays $116x to J as redemption proceeds.

(10) On December 10, 2007, J,
through Trust’s sponsor, also sells a trust interest to S for
$116x. Trustee determines that the cash held for distribution per trust interest
on that date is $1x. As a result of the sale, Broker1 credits J’s
account for $116x.

(11) As of December 31, 2007, Trust holds cash
of $173x and has incurred $15x in expenses that Trust has not paid. J is
the only TIH to redeem a trust interest during the calendar year. The sale
of two trust interests in Trust by J to S are
the only sales that occurred on the secondary market established by Trust’s
sponsor during 2007.

(ii) Trustee reporting—(A) Summary
of information provided by Trustee. Trustee meets the requirements
of paragraph (f)(1) of this section if Trustee provides the following information
to requesting persons:

(1) Income and expense information:

Factor for ordinary dividend income

0.3481

Factor for qualified dividend income

0.7407

Factor for interest income

0.0222

Factor for affected expenses

0.0833

Current year-end cash allocation factor

1.5960

Prior year cash allocation factor

0.1200

Prior year cash distribution date

April 15

(2) Information
regarding asset sales and distributions:

Date of sale

Trust sales proceeds Received

Trust sales proceeds Distributed
and Date Distributed

% of Trust Sold

June 1

$10.0000x

$10.0000x (July 15)

20%

December 12

$ 1.1616x

$ 0.0000x

2%

(3) Information regarding redemptions:

Date

Redemption asset proceeds

December 10

$115x

(4) Information regarding sales of trust interests:

Date

Cash held for distribution per trust interest

September 30

$1.35x

December 10

1.00x

(B) Trustee determines this information as follows:

(1) Step One: Trustee
determines the total amount of NMWHFIT distributions for the calendar year.
The total amount of NMWHFIT distributions (actual and deemed) for the calendar
year for purposes of determining the safe harbor factors is $540x. This amount
consists of the amounts paid on each scheduled distribution date during the
calendar year ($1135x, $135x, and $123x), plus the total amount paid to J as
a result of J’s redemption of a trust interest
($116x) ($1,135x + $135x + $123x + $116x = $1,509x)—

(i) Increased by all cash held for distribution
to TIHs as of December 31, 2007 ($158x), which is the cash held as of December
31, 2007 ($173x) reduced by the accrued but unpaid expenses as of December
31, 2007 ($15x), and

(ii) Decreased by all amounts distributed during
the calendar year but included in the year-end cash allocation factor from
a prior year ($12x); all redemption asset proceeds paid for the calendar year
($115x); and all trust sales proceeds distributed during the calendar year
($1,000x).

(2) Step Two: Trustee determines factors
that express the ratio of NMWHFIT income (other than OID) and expenses to
the total amount of NMWHFIT distributions. Trustee determines
the factors for each item of income earned by Trust and each item of expense
as follows:

(i) Ordinary dividend income factor.
The ordinary dividend income factor is 0.3481, which represents the ratio
of the gross amount of ordinary dividends ($188x) to the total amount of NMWHFIT
distributions for the calendar year ($540x).

(ii) Qualified dividend income factor.
The qualified dividend income factor is 0.7407 which represents the ratio
of the gross amount of qualified dividend income ($400x) to the total amount
of NMWHFIT distributions for the calendar year ($540x).

(iii) Interest income factor.
The interest income factor is 0.0222, which represents the ratio of the gross
amount of interest income ($12x) to the total amount of NMWHFIT distributions
for the calendar year ($540x).

(iv) Expense factor. The
affected expenses factor is 0.0833, which represents the ratio of the gross
amount of affected expenses paid by Trust for the calendar year ($45x) to
the total amount of NMWHFIT distributions for the calendar year ($540x).

(3) Step Three: Trustee determines adjustments
for reconciling the total amount of NMWHFIT distributions with amounts paid
to TIHs. To enable requesting persons to determine the total amount
of NMWHFIT distributions that are attributable to a TIH based on amounts actually
paid to the TIH, the trustee must provide both a current year-end cash allocation
factor and a prior year cash allocation factor.

(i) Current year-end cash allocation
factor. The adjustment factor for cash held by Trust at year end
is 1.5960, which represents the cash held for distribution as of December
31, 2007 ($158x) (the amount of cash held by Trust on December 31, 2007 ($173x)
reduced by accrued, but unpaid, expenses ($15x)), divided by the number of
trust interests outstanding at year-end (99).

(ii) Prior Year Cash Allocation Factor.
The adjustment factor for distributions of year-end cash from the prior year
is 0.1200, which represents the amount of the distribution during the current
calendar year that was included in a year-end cash allocation factor for a
prior year ($12x), divided by the number of trust interests outstanding at
the time of the distribution (100). The prior year cash distribution date
is April 15, 2007.

(4) Reporting sales and dispositions
of trust assets—(i) Application of the de
minimis test and the qualified NMWHFIT exception. The
aggregate fair market value of the assets of Trust as of January 1, 2007,
was $10,000x. During the 2007 calendar year, Trust received trust sales proceeds
of $1115x. Trust sales proceeds received by Trust for the 2007 calendar year
equal 11.15% of Trust’s fair market value as of January 1, 2007. Accordingly,
neither the de minimis test or the qualified NMWHFIT
exception is met for the calendar year.

(ii) Information to be provided.
To satisfy the requirements of paragraph (f)(1) of this section with respect
to sales and dispositions of Trust’s assets, Trustee provides a list
of dates on which trust assets were sold during the calendar year, and provides,
for each date: the trust sales proceeds (per trust interest) received on
that date; the trust sales proceeds distributed to TIHs (per trust interest)
with respect to sales or dispositions on that date; the date those trust sales
proceeds were distributed, and the ratio of the assets sold or disposed of
on that day to all the assets held by Trust. Because Trust will terminate
within 15 months of its start-up date, Trustee must use the fair market value
of the assets as of the start-up date to determine the portion of Trust sold
or disposed of on any particular date.

(5) Reporting redemptions.
Because Trust is not required to make distributions at least as frequently
as monthly, and Trust’s start-up date is after February 23, 2006, the
exception in paragraph (c)(2)(v)(C) of this section does not apply to Trust.
To satisfy the requirements of paragraph (f)(1) of this section, Trustee
provides a list of dates for which the redemption proceeds to be paid for
the redemption of a trust interest was determined for the 2007 calendar year
and the redemption assets proceeds paid for each date. During 2007, Trustee
only determined the amount of redemption proceeds to be paid for the redemption
of a trust interest once, for December 10, 2007, and the redemption asset
proceeds determined for that date was $115x.

(6) Reporting sales of trust interest.
Because Trust is not required to make distributions at least as frequently
as monthly, and Trust’s start up date is after February 23, 2006, the
exception in paragraph (c)(2)(v)(C) of this section does not apply to Trust.
Sponsor, in accordance with the trust agreement, provides Trustee with a
list of dates on which sales on the secondary market occurred. To satisfy
the requirements of paragraph (f)(1) of this section, Trustee provides requesting
persons with a list of dates on which sales on the secondary market occurred
and the amount of cash held for distribution per trust interest on each date.
During 2007, two sales occurred on the secondary market. The first sale
occurred on September 30, 2007, and the amount of cash held for distribution,
per trust interest, on that date is $1.35x. The second sale occurred on December
10, 2007, and the amount of cash held for distribution, per trust interest,
on that date is $1.00x.

(iii) Brokers’ use of information provided by Trustee—(A)
Broker1 and Broker2 use the information furnished by Trustee under the safe
harbor to determine that the following items are attributable to J, A,
and S—

With respect to J

Ordinary Dividend Income

$ 17.89x

Qualified Dividend Income

38.07x

Interest Income

1.14x

Affected Expenses

4.28x

Trust sales proceeds reported on

Form 1099

108.13x

Redemption asset proceeds

For redemption on December 10

115.00x

Sale asset proceeds

For sale on September 30

114.00x

For sale on December 10

115.00x

With respect to A

Ordinary Dividend Income

$ 18.82x

Qualified Dividend Income

40.04x

Interest Income

1.20x

Affected Expenses

4.50x

Trust sales proceeds reported on

Form 1099

111.62x

With respect to S

Ordinary Dividend Income

$ 19.54x

Qualified Dividend Income

41.58x

Interest Income

1.25x

Affected Expenses

4.68x

Trust sales proceeds reported on

Form 1099

113.94x

With respect to J, A,
and S (regarding the sales and dispositions executed
by Trust during the calendar year)

Date

Trust sales proceeds received per trust interest

% of Trust sold

June 15

$10.0000x

20%

December 12

1.1616x

2%

(B) The brokers determine the information provided to J, A,
and S as follows—

(1) Step One: Brokers determine the
total amount of NMWHFIT distributions attributable to J, A, and S.
Broker1 determines that the total amount of NMWHFIT distributions attributable
to J is $51.39x and the total amount of NMWHFIT distributions
attributable to A is $54.06x. Broker2 determines that
the total amount of NMWHFIT distributions attributable to S is
$56.13x.

(i) To calculate these amounts the brokers begin
by determining the total amount paid to J, A,
and S for the calendar year—

(A) The total amount paid to J for
the calendar year equals $485.42x and includes the April 15, 2007, distribution
of $13.50x, the July 15, 2007, distribution of $113.50x, the sales proceeds
for the September 30, 2007, sale of $115.35x, the October 15, 2007, distribution
of $11.07x, and the redemption proceeds of $116x and sales proceeds of $116x
for the redemption and sale on December 10, 2007.

(B) The total amount paid to A for
the calendar year equals $139.30x and includes the April 15, 2007, distribution
of $13.50x, the July 15, 2007, distribution of $113.50x and the October 15,
2007, distribution of $12.30x.

(C) The total amount paid to S for
the calendar year equals $140.53x and includes the April 15, 2007, distribution
of $13.50x, the July 15, 2007, distribution of $113.50x and the October 15,
2007, distribution of $13.53x.

(ii) The brokers increase the total amount paid
to J, A, and S by
an amount equal to the current year-end cash allocation factor (1.5960) multiplied
by the number of trust interests held by J (7), A (10),
and S (12) as of December 31, 2007; that is for J,
$11.17x; for A, $15.96x; and for S,
$19.15x.

(iii) The brokers reduce the amount paid to J, A,
and S as follows—

(A) An amount equal to the prior year cash allocation
factor (0.1200), multiplied by the number of trust interests held by J (10), A (10),
and S (10) on the date of the prior year cash distribution;
that is for J, A, and S,
$1.20x, each;

(B) An amount equal to all redemption asset proceeds
paid to a TIH for the calendar year; that is, for J,
$115x;

(C) An amount equal to all sales asset proceeds
attributable to the TIH for the calendar year; that is for J,
$229x (for the September 30, 2007, sale: $115.35x - 1.35x (cash held for distribution
per trust interest on that date)= $114x; and for the December 10, 2007, sale:
$116x-1.00 (cash held for distribution per trust interest on that date)=$115x));

(D) In the case of a purchasing TIH, an amount
equal to the amount of cash held for distribution per trust interest at the
time the TIH purchased its trust interest, multiplied by the number of trust
interests purchased; that is for S, $2.35x ($1.35x with
respect to the September 30, 2007, sale and $1x with respect to the December
10, 2007, sale);

(E) All amounts of trust sales proceeds distributed
to the TIH for the calendar year; that is for J, A,
and S, $100. ($100 each, with respect to the June 15,
2007, sale of assets by Trust, and $0 each, with respect to the December 12,
2007, sale of assets by Trust).

(2) Step two: The brokers apply the
factors provided by Trustee to determine the Trust’s income and expenses
that are attributable to J, A, and S. The amounts of each item
of income (other than OID) and expense that are attributable to J, A,
and S are determined by multiplying the factor for that
type of income or expense by the total amount of NMWHFIT distributions attributable
to J, A, and S as
follows:

(i) Application of factor for ordinary
dividends. The amount of ordinary dividend income attributable
to J is $17.89x, to A is $18.82x,
and to S is $19.54x. The brokers determine these amounts
by multiplying the total amount of NMWHFIT distributions attributable to J, A,
and S ($51.39x, $54.06x, and $56.13x, respectively) by
the factor for ordinary dividends (0.3481).

(ii) Application of factor for qualified
dividend income. The amount of qualified dividend income attributable
to J is $38.07x, to A is $40.04x,
and to S is $41.58x. The brokers determine these amounts
by multiplying the total amount of NMWHFIT distributions attributable to J, A,
and S ($51.39x, $54.06x, and $56.13x, respectively) by
the factor for qualified dividends (0.7407).

(iii) Application of factor for interest
income. The amount of interest income attributable to J is
$1.14x, to A is $1.20x, and to S is
$1.25x. The brokers determine these amounts by multiplying the total amount
of NMWHFIT distributions attributable to J, A,
and S ($51.39x, $54.06x, and $56.13x, respectively) by
the factor for interest (0.0222).

(iv) Application of factor for affected
expenses. The amount of affected expenses attributable to J is
$4.28x, to A is $4.50x, and to S is
$4.68x. The brokers determine these amounts by multiplying the total amount
of NMWHFIT distributions attributable to J, A,
and S ($51.39x, $54.06x, and $56.13x, respectively) by
the factor for affected expenses (0.0833).

(3) Brokers reporting of sales and dispositions of trust
assets—(i) Determining the amount of trust sales
proceeds to be reported on Form 1099 for J, A, and S. The amount
of trust sales proceeds to be reported on Form 1099 with respect to J is
$108.13x, to A is $111.62x, and to S is
$113.94x. To determine these amounts, the brokers aggregate the amount of
trust sales proceeds attributable to J, A,
and S for each date on which Trust sold or disposed of
assets. The brokers determine the amount of trust sales proceeds to be reported
with respect to the June 15, 2007, asset sale by multiplying the number of
trust interests held by J (10), A (10)
and S (10) on that date by the trust sales proceeds received
per trust interest on that date ($10x). The brokers determine the amount
of trust sales proceeds to be reported with respect to the December 12, 2007,
asset sale by multiplying the number of trust interests held by J (7), A (10)
and S (12) on that date by the trust sales proceeds received
per trust interest on that date ($1.1616x).

(ii) Information provided on the tax
information statements furnished to J, A, and S. The tax information
statements furnished to J, A, and S must
include the dates of each sale or disposition (June 15, 2007, and December
12, 2007); the amount of trust sales proceeds per trust interest received
on those dates ($10.00x and $1.1616x, respectively); and, the percentage of
Trust sold or disposed of on that date (20% and 2%, respectively).

(4) Reporting redemptions. Broker1 reports on
Form 1099 and on the written tax information statement furnished to J that J received
$115x in redemption asset proceeds for the calendar year.

(5) Reporting sales of trust interests on the secondary market.
Broker1 reports on J’s two sales of trust interests.
With respect to the sale on September 30, 2007, the sale asset proceeds equals
$114x ($115.35x sale proceeds - $1.35x cash held for distribution on that
date) and with respect to the sale on December 10, 2007, the sale asset proceeds
equal $115x ($116x sale proceeds - $1x cash held for distribution on that
date). Broker1 reports these amounts on Form 1099 and on the tax information
statement furnished to J.

(g) Safe Harbor for certain WHMTs—(1) Safe
harbor for trustee of certain WHMTs for reporting information—(i) In
general. The trustee of a WHMT that meets the requirements of
paragraph (g)(1)(ii) of this section is deemed to satisfy paragraph (c)(1)(i)
of this section, if the trustee calculates and provides WHFIT information
in the manner described in this paragraph (g) and provides a statement to
the requesting person giving notice that information has been calculated in
accordance with this paragraph (g)(1).

(ii) Requirements. A WHMT must meet the following
requirements—

(A) The WHMT must make monthly distributions of the income and principal
payments received by the WHMT to its TIHs;

(B) All trust interests in the WHMT must represent the right to receive
an equal pro-rata share of both the income and the principal
payments received by the WHMT on the mortgages it holds (for example, a WHMT
that holds or issues trust interests that qualify as stripped interests under
section 1286 may not report under this safe harbor);

(C) The WHMT must—

(1) Report under this paragraph (g)(1) for the
life of the WHMT; or

(2) If the WHMT has a start-up date before January
1, 2007, the WHMT must begin reporting under this paragraph (g)(1) as of January
1, 2007, and must continue to report under this paragraph for the life of
the WHMT;

(D) The WHMT must calculate all items subject to the safe harbor consistent
with the safe harbor;

(E) The assets of the WHMT must be limited to—

(1) Mortgages with uniform characteristics;

(2) Reasonably required reserve funds; and

(3) Amounts received on mortgages or reserve funds
and held for distribution to TIHs; and

(F) The aggregate outstanding principal balance (as defined in paragraph
(g)(1)(iii)(D) of this section) as of the WHMT’s start-up date must
equal the aggregate of the original face amounts of all issued trust interests.

(iii) Reporting WHMT income, expenses, non pro-rata partial
principal payments, and sales and dispositions under the safe harbor.
A trustee must comply with each step provided in this paragraph (g)(1)(iii).

(A) Step One: Determine monthly pool factors.
The trustee must, for each month of the calendar year and for January of
the following calendar year, calculate and provide the ratio (expressed as
a decimal carried to at least eight places and called a pool factor)
of—

(1) The amount of the aggregate outstanding principal
balance of the WHMT as of the first business day of the month; to

(2) The amount of the aggregate outstanding principal
balance of the WHMT as of the start-up date.

(B) Step Two: Determine monthly expense factors.
For each month of the calendar year and for each item of expense paid by
the WHMT during that month, the trustee must calculate and provide the ratio
(expressed as a decimal carried to at least eight places and called an expense
factor) of—

(1) The gross amount, for the month, of each item
of expense; to

(2) The amount that represents the aggregate outstanding
principal balance of the WHMT as of the start-up date, divided by 1,000.

(C) Step Three: Determine monthly income factors.
For each month of the calendar year and for each item of gross income earned
by the WHMT during that month, the trustee must calculate and provide the
ratio (expressed as a decimal carried to at least eight places and called
an income factor) of—

(1) The gross amount, for the month, of each item
of income, to

(2) The amount that represents the aggregate outstanding
principal balance of the WHMT as of the start-up date, divided by 1,000.

(D) Definition of aggregate outstanding principal balance.
For purposes of this paragraph (g)(1)(iii), the amount of the aggregate outstanding
principal balance of a WHMT is the aggregate of—

(1) The outstanding principal balance of all mortgages
held by the WHMT;

(2) The amounts received on mortgages as principal
payments and held for distribution by the WHMT; and

(3) The amount of the reserve fund (exclusive of
undistributed income).

(iv) Reporting OID information under the safe harbor—(A) Reporting
OID prior to the issuance of final regulations under section 1272(a)(6)(C)(iii)—(1)
For calendar years prior to the effective date of final regulations under
section 1272(a)(6)(C)(iii), the trustee must provide, for each month during
the calendar year, the aggregate daily accrual of OID per $1,000 of aggregate
outstanding principal balance as of the start-up date (daily portion). For
purposes of this paragraph (g)(1)(iv), the daily portion of OID is determined
by allocating to each day of the month its ratable portion of the excess (if
any) of—

(i) The sum of the present value (determined under
section 1272(a)(6)(B)) of all remaining payments under the mortgages held
by the WHMT at the close of the month, and the payments during the month of
amounts included in the stated redemption price of the mortgages, over

(ii) The aggregate of each mortgage’s adjusted
issue price as of the beginning of the month.

(2) In calculating the daily portion of OID, the
trustee must use the prepayment assumption used in pricing the original issue
of trust interests.

(B) Reporting OID after the issuance of final regulations
under section 1272(a)(6)(C)(iii). [Reserved.]

(v) Reporting market discount information under the safe harbor—
(A) Reporting market discount information prior to the issuance
of final regulations under sections 1272(a)(6)(C)(iii) and 1276(b)(3).
For calendar years prior to the effective date of final regulations under
sections 1272(a)(6)(C)(iii) and 1276(b)(3), the trustee must provide—

(1) In the case of a WHMT holding mortgages issued
with OID, the ratio (expressed as a decimal carried to at least eight places)
of—

(i) The OID accrued during the month (calculated
in accordance with paragraph (g)(1)(iv) of this section); to

(ii) The total remaining OID as of the beginning
of the month (as determined under paragraph (g)(1)(v)(A)(3)
of this section); or

(2) In the case of a WHMT holding mortgages issued
without OID, the ratio (expressed as a decimal carried to at least eight places)
of—

(i) The amount of stated interest paid to the WHMT
during the month; to

(ii) The total amount of stated interest remaining
to be paid to the WHMT as of the beginning of the month (as determined under
paragraph (g)(1)(v)(A)(3) of this section).

(3) Computing the total amount of stated
interest remaining to be paid and the total remaining OID at the beginning
of a month. To compute the total amount of stated interest remaining
to be paid to the WHMT as of the beginning of the month and the total remaining
OID as of the beginning of the month, the trustee must use the prepayment
assumption used in pricing the original issue of unit interests.

(B) Reporting market discount information under the safe harbor
following the issuance of final regulations under sections 1272(a)(6)(C)(iii)
and 1276(b)(3). [Reserved.]

(2) Use of information provided by a trustee under the safe
harbor—(i) In general. If a trustee
reports WHMT items in accordance with paragraph (g)(1) of this section, the
information provided with respect to those items on the Forms 1099 required
to be filed with the IRS under paragraph (d) of this section and on the statement
required to be furnished to the TIH under paragraph (e) of this section must
be determined as provided in this paragraph (g)(2).

(ii) Reporting WHMT income, expenses, non pro-rata partial
principal payments, and sales and dispositions under the safe harbor.
The amount of each item of income, the amount of each item of expense, and
the combined amount of non pro-rata partial principal
payments and trust sales proceeds that are attributable to a TIH for each
month of the calendar year must be computed as follows:

(A) Step One: Determine the aggregate of the non pro-rata partial
principal payments and trust sales proceeds that are attributable to the TIH
for the calendar year. For each month of the calendar year that
a trust interest was held on the record date —

(1) Determine the monthly amounts per
trust interest. The trustee or middleman must determine the aggregate
amount of non pro-rata partial principal payments and
the trust sales proceeds that are attributable to each trust interest for
each month by multiplying—

(i) The original face amount of the trust interest;
by

(ii) The difference between the pool factor for
the current month and the pool factor for the following month.

(2) Determine the amount for the calendar
year. The trustee or middleman must multiply the monthly amount
per trust interest by the number of trust interests held by the TIH on the
record date of each month. The trustee or middleman then must aggregate these
monthly amounts, and report the aggregate amount on the Form 1099 filed with
the IRS and on the tax information statement furnished to the TIH as trust
sales proceeds. No other information is required to be reported to the IRS
or the TIH to satisfy the requirements of paragraphs (d) and (e) of this section
under this paragraph (g) with respect to sales and dispositions and non pro-rata partial
principal payments.

(B) Step Two: Determine the amount of each item of expense
that is attributable to a TIH—(1) Determine
the monthly amounts per trust interest. For each month of the
calendar year that a trust interest was held on the record date, the trustee
or middleman must determine the amount of each item of expense that is attributable
to each trust interest by multiplying—

(i) The original face amount of the trust interest,
divided by 1000; by

(ii) The expense factor for that month and that
item of expense.

(2) Determine the amount for the calendar
year. The trustee or middleman must multiply the monthly amount
of each item of expense per trust interest by the number of trust interests
held by the TIH on the record date of each month. The trustee or middleman
then must aggregate the monthly amounts for each item of expense to determine
the total amount of each item of expense that is attributable to the TIH for
the calendar year.

(C) Step Three: Determine the amount of each item of income
that is attributable to the TIH for the calendar year—(1) Determine
the monthly amounts per trust interest. For each month of the calendar
year that a trust interest was held on the record date, the trustee or middleman
must determine the amount of each item of income that is attributable to each
trust interest by multiplying—

(i) The original face amount of the trust interest,
divided by 1,000; by

(ii) The income factor for that month and that
item of income.

(2) Determine the amount for the calendar
year. The trustee or middleman must multiply the monthly amount
of each item of income per trust interest by the number of trust interests
held by the TIH on the record date of each month. The trustee or middleman
then must aggregate the monthly amounts for each item of income to determine
the total amount of each item of income that is attributable to the TIH for
the calendar year.

(D) Definitions for this paragraph (g)(2). For
purposes of this paragraph (g)(2)(ii)—

(1) The record date is the
date used by the WHMT to determine the owner of the trust interest for the
purpose of distributing the payment for the month.

(2) The original face amount of the trust
interest is the original principal amount of a trust interest on
its issue date.

(iii) Reporting OID information under the safe harbor.
With respect to each month, trustee or middleman must determine the amount
of OID that is attributable to each trust interest held by a TIH by multiplying—

(A) The product of the OID factor multiplied by the original face amount
of the trust interest, divided by 1,000; by

(B) The number of days during the month that the TIH held the trust
interest.

(iv) Requirement to provide market discount information under
the safe harbor. The trustee or middleman must provide the market
discount information in accordance with paragraph (g)(1)(v) of this section
to the TIH in, or with, the written statement required to be furnished to
the TIH under paragraph (e) of this section.

(3) Example of the use of the safe harbor for WHMTs.
The following example illustrates the use of the factors in this paragraph
(g) to calculate and provide WHMT information:

Example. (i) Facts—(A) In
general. X is a WHMT. X’s
start-up date is January 1, 2007. As of that date, X’s
assets consist of 100 15-year mortgages, each having an unpaid principal balance
of $125,000 and a fixed, annual interest rate of 7.25 percent. None of the
mortgages were issued with OID. X’s TIHs are entitled
to monthly, pro-rata distributions of the principal payments
received by X. X’s TIHs are
also entitled to monthly, pro-rata distributions of the
interest earned on the mortgages held by X, reduced by
expenses. Trust interests are issued in increments of $5,000 with a $25,000
minimum. The prepayment assumption used in pricing the original issue of
trust interests is six percent. Broker holds a trust interest in X,
with an original face amount of $25,000, in street name, for C during
the entire 2007 calendar year.

(B) Trust events during the 2007 calendar year.
During the 2007 calendar year, X collects all interest
and principal payments when due and makes all monthly distributions when due.
One mortgage is repurchased from X in July 2007 for
$122,249, the mortgage’s unpaid principal balance plus accrued, but
unpaid, interest at the time. During November 2007, another mortgage is prepaid
in full. X earns $80 interest income each month from
the temporary investment of X’s funds pending distribution
to the TIHs. All of X’s expenses are affected
expenses. The aggregate outstanding principal balance of X’s
mortgages, X’s interest income, and X’s
expenses, for each month of the 2007 calendar year, along with the aggregate
outstanding principal balance of X as of January 2008,
are as follows:

Month

Principal Balance

Income

Expenses

January

$12,500,000

$75,601

$5,288

February

12,461,413

75,368

5,273

March

12,422,593

75,133

5,256

April

12,383,538

74,897

5,240

May

12,344,247

74,660

5,244

June

12,304,719

74,421

5,207

July

12,264,952

74,181

5,191

August

12,102,696

73,200

5,122

September

12,062,849

72,960

5,106

October

12,022,762

72,718

5,089

November

11,982,432

72,474

5,073

December

11,821,234

71,500

5,006

January

11,780,829

(ii) Trustee reporting—(A) Trustee, X’s
fiduciary, comes within the safe harbor of paragraph (g)(1)(ii) of this section
by providing the following information to requesting persons:

Month

Pool Factor

Income Factor

Expense Factor

January

1.00000000

6.04806667

0.42304000

February

0.99691304

6.02941628

0.42184000

March

0.99380744

6.01065328

0.42048000

April

0.99068304

5.99177670

0.41920000

May

0.98753976

5.97278605

0.41952000

June

0.98437752

5.95368085

0.41656000

July

0.98119616

5.93446013

0.41528000

August

0.96821564

5.85603618

0.40976000

September

0.96502792

5.83677704

0.40848000

October

0.96182096

5.81740161

0.40712000

November

0.95859459

5.79790896

0.40584000

December

0.94569875

5.71999659

0.40048000

January

0.94246631

(B) Trustee determines this information as follows:

(1) Step One: Trustee determines monthly
pool factors. Trustee calculates and provides X’s
pool factor for each month of the 2007 calendar year. For example, for the
month of January 2007 the pool factor is 1.0, which represents the ratio of
—

(i) The amount that represents the aggregate outstanding
principal balance of X ($12,500,000) as of the first
business day of January; divided by

(ii) The amount that represents the aggregate outstanding
principal balance of X ($12,500,000) as of the start-up
day.

(2) Step Two: Trustee determines monthly
expense factors. Trustee calculates and provides the expense factors
for each month of the 2007 calendar year. During 2007, X has
only affected expenses, and therefore, will have only one expense factor for
each month. For example, the expense factor for the month of January 2007
is 0.42304000, which represents the ratio of—

(i) The gross amount of expenses paid during January
by X ($5,288); divided by

(ii) The amount that represents the aggregate outstanding
principal balance of X as of the start-up date ($12,500,000)
divided by 1,000 ($12,500).

(3) Step Three: Trustee determines monthly
income factors. Trustee calculates and provides the income factors
for each month of the 2007 calendar year. During 2007, X has
only interest income, and therefore, will have only one income factor for
each month. For example, the income factor for the month of January 2007
is 6.04806667, which represents the ratio of—

(i) The gross amount of interest income earned
by X during January ($75,601); divided by

(ii) The amount that represents that aggregate
outstanding principal balance of X as of the start-up
date ($12,500,000), divided by 1,000 ($12,500).

(4) Step Four: Trustee calculates and
provides monthly market discount fractions. Trustee calculates
and provides a market discount fraction for each month of the 2007 calendar
year using a prepayment assumption of 6% and a stated interest rate of 7.25%.

(iii) Broker’s use of the information provided by Trustee—(A)
Broker uses the information provided by Trustee under paragraph (g) of this
section to determine that the following trust items are attributable to C:

(1) Step One: Broker determines the
amount of the non pro-rata partial principal payments
and trust sales proceeds received by X that are attributable
to C for the 2007 calendar year. Broker determines the amount
of the non pro-rata partial principal payments and trust
sales proceeds received by X that are attributable to C for
each month of the 2007 calendar year. For example, for the month of January,
Broker determines that the amount of principal receipts and the amount of
trust sales proceeds that are attributable to C is $77.17.
Broker determines this by multiplying the original face amount of C’s
trust interest ($25,000) by 0.00308696, the difference between the pool factor
for January 2007 (1.00000000) and the pool factor for the following month
of February 2007 (0.99691304). Broker reports the aggregate of the monthly
amounts of non pro-rata partial principal payments and
trust sales proceeds that are attributable to C for the
2007 calendar year as trust sales proceeds on the Form 1099 filed with the
IRS.

(2) Step Two: Broker applies the expense
factors provided by Trustee to determine the amount of expenses that are attributable
to C for the 2007 calendar year. Broker determines the amount
of X’s expenses that are attributable to C for
each month of the calendar year. For example, for the month of January 2007,
Broker determines that the amount of expenses attributable to C is
$10.58. Broker determines this by multiplying the original face amount of C’s
trust interest ($25,000), divided by 1,000 ($25) by the expense factor for
January 2007 (0.42304000). Broker determines the expenses that are attributable
to C for the 2007 calendar year by aggregating the monthly
amounts.

(3) Step Three: Broker applies the income
factors provided by Trustee to determine the amount of gross interest income
attributable to C for the 2007 calendar year. Broker determines
the amount of gross interest income that is attributable to C for
each month of the calendar year. For example, for the month of January 2007,
Broker determines that the amount of gross interest income attributable to C is
$151.20. Broker determines this by multiplying the original face amount of C’s
trust interest ($25,000), divided by 1,000 ($25), by the income factor for
January 2007 (6.04806667). Broker determines the amount of the gross interest
income that is attributable to C for the 2007 calendar
year by aggregating the monthly amounts.

(4) Step Four: Broker provides market
discount information to C. Broker provides C with
the market discount fractions calculated and provided by the trustee of X under
paragraph (g)(3)(ii)(B)(4) of this section.

(h) Requirement that middlemen furnish information to beneficial
owners that are exempt recipients and noncalendar-year beneficial owners—(1) In
general. A middleman that holds a trust interest on behalf of,
or for the account of, either a beneficial owner that is an exempt recipient
defined in paragraph (b)(7) of this section or a noncalendar-year beneficial
owner, must provide to such beneficial owner, upon request, the information
provided by the trustee to the middleman under paragraph (c) of this section.

(2) Time for providing information. The middleman
must provide the requested information to any beneficial owner making a request
under paragraph (h)(1) of this section on or before the later of the 44th day
after the close of the calendar year for which the information was requested,
or the day that is 28 days after the receipt of the request. A middleman
must provide information with respect to a WHFIT holding an interest in another
WHFIT, or a WHFIT holding an interest in a REMIC, on or before the later of
the 58th day after the close of the calendar year
for which the information was requested, or the 42nd day
after the receipt of the request.

(3) Manner of providing information. The requested
information must be provided—

(i) By written statement sent by first class mail to the address provided
by the person requesting the information;

(ii) By electronic mail provided that the person requesting the information
requests that the middleman furnish the information by electronic mail and
the person furnishes an electronic address;

(iii) At an Internet website of the middleman or the trustee, provided
that the beneficial owner requesting the information is notified that the
requested information is available at the Internet website and is furnished
the address of the site; or

(D) Any other manner agreed to by the middleman and the beneficial
owner requesting the information.

(4) Clearing organization. A clearing organization
described in §1.163-5(c)(2)(i)(D)(8) is not required
to furnish information to exempt recipients or non-calendar-year TIHs under
this paragraph (h).

(i) [Reserved.]

(j) Coordination with other information reporting rules.
In general, in cases in which reporting is required for a WHFIT under both
this section and subpart B, part III, subchapter A, chapter 61 of the Internal
Revenue Code (Sections 6041 through 6050T) (Information Reporting Sections),
the reporting rules for WHFITs under this section must be applied. The provisions
of the Information Reporting Sections and the regulations thereunder are incorporated
into this section as applicable, but only to the extent that such provisions
are not inconsistent with the provisions of this section.

(k) Backup withholding requirements. Every trustee
and middleman required to file a Form 1099 under this section is a payor within
the meaning of §31.3406(a)-2, and must backup withhold as required under
section 3406 and any regulations thereunder.

(l) Penalties for failure to comply. Every trustee
and middleman who fails to comply with the reporting obligations imposed by
this section is subject to penalties under sections 6721, 6722, and any other
applicable penalty provisions.

(m) Effective date. These regulations are applicable
January 1, 2007. Trustees must calculate and provide trust information with
respect to the 2007 calendar year and all subsequent years consistent with
these regulationsInformation returns required to be filed with the IRS and
the tax information statements required to be furnished to trust interest
holders after December 31, 2007 must be consistent with these regulations.

Par. 4. Section 1.6041-9 is added to read as follows:

§1.6041-9 Coordination with reporting rules for widely
held fixed investment trusts under §1.671-5.

See §1.671-5 for the reporting rules for widely held fixed investment
trusts (WHFIT) (as defined under that section). For purposes of section 6041,
middlemen and trustees of WHFITs are deemed to have management and oversight
functions in connection with payments made by the WHFIT.

§1.6045-1 Returns of information of brokers and barter
exchanges.

* * * * *

(d) * * *

(7) Coordination with reporting rules for widely held fixed
investment trusts under §1.671-5 of this chapter. See §1.671-5
for the reporting rules for widely held fixed investment trusts (as defined
under that section).

§1.6049-4 Return of information as to interest paid
and original issue discount includible in gross income after December 31,
1982.

* * * * *

(c) * * *

(3) Coordination with reporting rules for widely held fixed
investment trusts under §1.671-5 of this chapter. See §1.671-5
for the reporting rules for widely held fixed investment trusts (as defined
under that section).

* * * * *

Par. 8. In §1.6049-5, paragraph (a)(6) is revised to read as follows:

§1.6049-5 Interest and original issue discount subject
to reporting after December 31, 1982.

(a) * * *

(6) Interest paid on amounts held by investment companies as defined
in section 3 of the Investment Company Act (15 U.S.C. section 80-a) and on
amounts paid on pooled funds or trusts. The interest to be reported with
respect to a widely held fixed investment trust, as defined in §1.671-5(b)(22),
shall be the interest earned on the assets held by the trust. See §1.671-5
for the reporting rules for widely held fixed investment trusts (as defined
under that section).

* * * * *

Par. 9. Section 1.6050N-2 is added to read as follows:

§1.6050N-2 Coordination with reporting rules for widely
held fixed investment trusts under §1.671-5.

See §1.671-5 for the reporting rules for widely held fixed investment
trusts (as defined under that section).

PART 301—PROCEDURE AND ADMINISTRATION

Par. 10. The authority citation for part 301 continues to read, in
part, as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 11. Section 301.6109-1 is amended by:

1. Revising the heading to paragraph (a)(2).

2. Revising paragraph (a)(2)(i).

The revisions read as follows:

§301.6109-1 Identifying numbers.

(a) * * *

(2) A trust that is treated as owned by one or more persons
pursuant to sections 671 through 678—(i) Obtaining
a taxpayer identification number—(A) General rule.
Unless the exception in paragraph (a)(2)(i)(B) of this section applies, a
trust that is treated as owned by one or more persons under sections 671 through
678 must obtain a taxpayer identification number as provided in paragraph
(d)(2) of this section.

(B) Exception for a trust all of which is treated as owned
by one grantor or one other person and that reports under §1.671-4(b)(2)(i)(A)
of this chapter. A trust that is treated as owned by one grantor
or one other person under sections 671 through 678 need not obtain a taxpayer
identification number, provided the trust reports pursuant to §1.671-4(b)(2)(i)(A)
of this chapter. The trustee must obtain a taxpayer identification number
as provided in paragraph (d)(2) of this section for the first taxable year
that the trust is no longer owned by one grantor or one other person or for
the first taxable year that the trust does not report pursuant to §1.671-4(b)(2)(i)(A)
of this chapter.

* * * * *

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 12. The authority citation for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 13. In §602.101, paragraph (b) is amended by adding an entry
in numerical order to the table to read as follows:

§602.101 OMB Control numbers.

* * * * *

(b) * * *

CFR part or section where identified and described

Current OMB Control No.

* * * * *

1.671-5

1545-1540

* * * * *

Mark E. Matthews, Deputy
Commissioner for Services and Enforcement.

Approved January 5, 2006.

Eric Solomon, Acting
Deputy Assistant Secretary (Tax Policy).

Note

(Filed by the Office of the Federal Register on January 23, 2006, 8:45
a.m., and published in the issue of the Federal Register for January 24, 2006,
71 F.R. 4001)

Drafting Information

The principal author of these regulations is Faith Colson of the Office
of Associate Chief Counsel (Passthroughs and Special Industries). However,
other personnel from the IRS and the Treasury Department participated in their
development.